If you’re serious about buying a house in this busy Toronto real estate market, you can’t just get a prequalification for a mortgage. Instead, you need to take the extra step and get a preapproval for a mortgage loan. A prequalification provides you with an approximation of how much you can loan. A preapproval, on the other hand, gives you the exact amount of the mortgage you can obtain if you bid on a house or negotiate with the seller.
A preapproval is virtually a sure thing and subject only to an appraisal of the property. That’s why serious sellers prefer to deal only with that with those who have preapproval for a mortgage. At least they know how much you can actually get when it’s time to buy the house.
So how exactly can you get preapproved? Here are the steps you need to take:
- Look after your credit. Any lender will check your credit report and credit scores to see if you’re trustworthy enough to lend money to. They’ll check your borrowing history and payment record, and they will, of course, want you to have a high credit score and an impeccable credit report. That’s why you should check out your credit reports yourself to see what’s going on. This information is free to obtain, at least once a year.
Now if there are some parts about that that’s wrong, such as a record of you missing a payment when you know for a fact that you haven’t, then you have to have it corrected. Errors don’t occur very often—only about 5% of credit reports have a mistake—but you don’t want to chance the serious consequences. It’s possible that the mistake can cost you the chance for a large mortgage.
- Prepare your paperwork. Your mortgage lender will then ask for some documents that will shed light on your ability to pay the montage on schedule. These will include your pay stubs, tax returns, bank accounts, and other similar documents. Basically, they want you to have enough income to cover not just your current debts but also the new mortgage debt.
So prepare these documents in advance, so that you won’t delay submitting copies of the documents when the lender asks for them.
- Pick the right mortgage lender. There are several types of mortgage lenders, but usually they’re either a bank or a local credit union. Now that you already have a preapproval statement from one lender, you can use this to get a better deal from other lenders. You may want to get a lender who charges less interest, and who requires you to pay smaller annual fees, processing fees, and prepayment penalties.
- Apply for a loan. You have to expect that this will take time, and you need to be patient. Even if you’re dealing with a familiar bank, there will still be lots of requested paperwork involved. The lender will always try to get as much info on you to make sure of your ability to repay the mortgage.
What you don’t want to do is to work with unscrupulous lenders who make unrealistic promises. Avoid those outfits that claim that they approve everybody. Only work with reputable lenders so that the montage deal goes much more smoothly.
Once you get your preapproval for a mortgage, you will now know if you can afford a particular home or not. Make sure the seller knows you’ve been pre-approved and they’ll be more likely to deal with you instead of others who only have been pre-qualified.