By Geoff Kirbyson
Unless you’re planning to pay for your new house with cash, it’s probably a good idea to get ready for arguably the biggest item on your to-do list — getting pre-approved for a mortgage.
Your first step? Start compiling your paperwork.
Before agreeing to loan you money for the biggest investment of your lifetime, your bank or credit union is going to want documentation of your employment experience, any history your have with purchasing real estate and a title search if you currently own any property.
If you’re divorced, you’ll want to have a copy of your separation agreement handy, too.
“They’re going to need more information than you came (to the bank) with. Anything that would give them a better understanding of what you have to spend monthly on a mortgage and taxes,” said Catherine Schellenberg, president-elect of WinnipegREALTORS® and alternate broker.
If you’re not sure about getting approved and you don’t have a firm date by which you want or need to buy a new house, do your best to clean up your credit. Start by getting a copy of your credit report — it’s probably the first thing your bank will do when it receives your application, so if you have any red flags, it’ll have them — and clean up any deficiencies, such as paying off any overdue debts, a credit card balance or a loan.
When you’re given the green light, you’ll receive a letter from your financial institution saying you are approved to buy a home up to a certain value and you have the money to make both the deposit with your offer and the overall deposit should your offer be accepted.
Not everybody gets their mortgage from a bank or a credit union but if you’re going to seek out pre-approval from a non-traditional lender, you’ll be paying a slightly higher interest rate.
The quicker you can get everything together, the quicker your financial institution can determine your credit worthiness. But if you’re approved, you don’t have an unlimited amount of time to take action.
“I always recommend to my clients that if you haven’t bought a home within 90 days, to check with your bank to make sure you’re still okay,” she said.
The pre-approval spells out a price range in which you’re qualified to buy. But once you make an offer, the bank can still weigh in on the proceedings.
“Once (the offer) is accepted, it’s up to the bank to determine if they’re going to finance the mortgage. If the purchaser paid $300,000 but the bank’s appraiser says the house is only worth $280,000, it’s up to the buyer to come up with the difference or they can walk away from the sale,” she said.
It often amazes Schellenberg that people will look seriously at houses with list prices far north of approval level in the hopes that they can low-ball their way to a bigger or nicer home than they can afford.
Even though the buyer gets qualified through the bank process, the home needs to go through an approval, too. Offers to buy are conditional on financing, which gives the financial institution time to do its own due diligence. If it needs to do an appraisal or a survey, it has the time to gather it before making the final decision on the financing.