If you are a first-time home buyer many real estate terms can get confusing. You think if you get pre-qualified that all is done for getting a mortgage. Not really, there is a big difference between pre-approval and pre-qualified and final approval when it comes to your lender. As a future home owner, you should make sure that you are familiar and comfortable with these terms before you step further.
Pre-qualification
A pre-qualification through your lender is simply to look at your current situation and estimate how much house you can purchase. Your lender will look at any current income, debt, etc. to make this decision. For example, if you are pre-qualified to purchase a home for $400,000, this means that the amount you will borrow plus any down payments will equal $400,000. There are many online mortgage calculators available to give you an approximate idea where you stand also. It is also strongly advised to look at your current budget and then the monthly payments you will be making on your future mortgage.
Pre-approval
Once you understand what you can afford through the pre-qualification process then the next step is the pre-approval. A mortgage broker or your lender will ask for specific information to complete this process. Some items they need are:
- your personal information
- current annual income (salaried, commission or hourly)
- how long with current employer (if less than 3 years you will need any former employer)
- current assets (savings, investments, RRSP, etc.)
- current debt (car payment, loans, credit cards, line of credit)
- credit score
- down payment
- maximum purchase price
As you can see, the pre-approval process is much more detailed than the pre-qualification process. If you are pre-approved, your lender will give you a letter stating a specific mortgage and interest rate term usually locked in for between 30-120 days. This will give you added confidence that a lender will lend the amount for your mortgage. Both the pre-qualification and pre-approval are not mandatory but necessary for any purchasing of a home.
Once you put in an offer to purchase a home and a real estate agreement to purchase has been signed by all parties then the lender will begin the approval process. On your agreement to purchase it is advised to have some conditions added. For example, conditions on financial approval, home inspection and perhaps the sale of your current home.
A professional real estate company is critical to help you with many of the real estate terms and real estate contracts that are often confusing when purchasing a home. Our Anne Winch Ottawa Real Estate Team can guide you through every step of the way. With a multitude of years of experience in the real estate industry, we make the process of purchasing a home much easier. Give us a call for any of your real estate needs for purchasing, staging or selling.