What is a Preapproved Mortgage?

Sometimes, buyers are confused about what a preapproved mortgage (oft misspelled as mortgage) actually is.

It's a good idea to seek a written mortgage preapproval from your bank or the mortgage broker recommended by your REALTOR®. By shopping the mortgage market for you, a mortgage broker or mortgage agent can sometimes arrange ...

More Favourable Terms

... for you than your bank.

To obtain a mortgage preapproval, you'll need a confirmation of employment income (financial statements or tax returns, if you're self-employed), written confirmation of your down payment (unless you're using your own bank), and a credit report, which can be obtained with your authorization, by your lender or broker.

Don't accept a letter from your lender or mortgage broker that simply states that they'll lend you funds for a mortgage subject to confirmation of all of the above. That'll not help you much when it comes to negotiating a fair deal with a seller.

If your REALTOR® can assure the seller and their agent that the condition on financing included in your offer is a mere formality, that you've been pre-approved already, and can show them your actual preapproval certificate or letter to prove it, you'll be in a ...

Stronger Bargaining Position

And your REALTOR® can remind the seller that only their property must be approved by the lender by way of a realistic appraisal. If the house fails to appraise to the lender's satisfaction, that is at a value that doesn't excessively exceed the negotiated purchase price, and you require a high-ratio mortgage (more than 80% of the purchase price), the mortgage could conceivably be declined unless you can raise your down payment, which isn't always possible.

Another good reason to seek a preapproved mortgage before commencing your home search is that it will confirm ...

How Much You Can Afford

... to spend for a home. Add your maximum loan amount to your down payment available, and you'll know your maximum purchase price.

It's a great guide for first time home buyers. You get to avoid the heartache of disappointment. After finding your dream home, you discover that you can't buy it because you don't qualify for the mortgage needed to buy it. And you've wasted a ton of time in the process.

So, is it wise to obtain a preapproved mortgage before starting your home search?

Absolutely

To learn more about buying a home, and the preapproved mortgage, click here.

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