connectFirst - Why Getting Pre-Approved for a Mortgage Matters

Are you on the path to purchasing your dream home? If so, there's a critical step you don't want to skip: getting preapproved for a mortgage.

While many people are familiar with the term "pre-qualification," it's important to understand the significant difference between prequalification and preapproval, as well as why preapproval is a crucial part of the home buying process.

Pre-Qualification vs. Pre-Approval: Unpacking the Difference

Getting pre-qualified is the initial step in assessing your affordability. It involves a basic review of your income, assets, and debts to provide a general idea of what you might be able to afford. While prequalification is a useful starting point, it's not as comprehensive as a preapproval.

On the other hand, a preapproval is a more in-depth evaluation of your financial situation. It requires a thorough examination of your financial documentation, including income records for the past two years, outstanding debts, credit score, and debt ratio. Because the process is thorough you’re able to get an idea of what your interest rate will be. Most institutions will lock in your rate for 120 days, helping you secure a favorable deal in a fluctuating market.

Getting Preapproved: What You Need

Now that you understand the importance of preapproval, you might be wondering what it takes to get one.

Here's a checklist of items to bring when you book your preapproval appointment:

• Proof of Income: Provide a recent paystub to showcase your current income.
• Tax Documents: Bring your notice of assessment from the past year (or the past two if you're self-employed). These documents help lenders assess your financial stability.
• Debt Overview: Prepare a list of your outstanding debts, along with the amount owed on each one. This information is crucial for evaluating your debt-to-income ratio. Your financial institution should be able to provide you with a template.
• SIN Number: Your Social Insurance Number (SIN) is required for identity verification and credit checks.
• Asset Documentation: Compile a list of your assets, including any supporting documents if necessary. This may include bank statements or investment account statements.

Additionally, if you're receiving a down payment as a gift, it's helpful to have a gift letter ready. This letter explains the source of the funds and is an important part of the documentation process (for more on this refer back to the Home Buyers Guide).

The Impact on Your Credit Score

One common concern among prospective homebuyers is whether the preapproval process will negatively affect their credit score. The good news is that preapproval typically involves a soft credit check, which does not have a significant impact on your overall credit rating.

Keeping that in mind, your actual mortgage will have an initial effect on your score, but usually mortgages look good on a credit score, especially when paying back over time. It shows that you have a healthy track record of paying back and outstanding debt.

Ready to take this important step?

Securing a preapproval is a crucial step in your home-buying journey. It not only gives you a clear understanding of your buying power but also provides a competitive edge in the real estate market. With a preapproval in hand, you can confidently make offers on homes, knowing you're a serious and qualified buyer.

If you're ready to take this important step, we're here to assist you in getting preapproved for a mortgage that aligns with your needs and goals. Let's chat and move you one step closer to your dream home.

Book appointment ➜