5 Tips for Getting a Mortgage Pre-Approval
Whether you're a first-time homebuyer or adding an investment to your portfolio, taking the time to do your research and get a mortgage pre-approval is essential. It can help determine your buying power, narrow down your search, and make you a more attractive buyer. To help you navigate the process, here are five tips for getting a mortgage pre-approval.
Know your credit score
Your credit score is one of the most critical factors in determining whether you'll be approved for a mortgage and what interest rate you’ll be offered. First-time homebuyers should make sure that they check their credit scores before applying and take steps to improve it if necessary. Some banks offer a free credit score tool, or you can use a trusted credit bureau company, however, they generally charge a fee to provide you with your credit score.
Know your debt-to-income ratio
Similar to understanding your credit score, you should also be familiar with your debt-to-income ratio (DTI). Your DTI is the amount of debt you have compared to your income. Ideally, your DTI should be less than 36%. To determine your DTI, review your income over the past year and compare it to your spending, month by month. This can help you gain a clear picture of where your money goes each month and even some areas where you can cut back on spending.
It can be helpful to pay off any outstanding debts before applying for a mortgage pre-approval to improve your chances of being approved. However, you can also speak to a mortgage broker to determine if and what should be paid off.
Gather your financial documents
You'll need to provide a lot of financial documentation including tax returns, bank statements, pay stubs, and more. At the time of mortgage pre-approval application, your mortgage broker will walk you through all the documents you need. Gathering these documents in advance can help speed up the pre-approval process and prevent delays. Many of these documents are available to you online through your online baking, Canadian Revenue Agency account, and your company payroll software.
Review your options through multiple lenders
Shopping around for the best mortgage rates and terms can save you thousands of dollars over the life of your loan. That's why it's essential to speak to multiple lenders and see where you can find the best deal. You can also get pre-approved through more than one lender; however, this may count as a “hard hit” on your credit score.
Also, remember to read the terms and conditions carefully for each mortgage you qualify for as a low-interest rate may not always be the best option if there are high fees. Ask about things like penalties for lump sum payments, late payments, and early re-financing.
Hold off on any major purchases
During the pre-approval process, it's important to avoid any major purchases or changes to your financial situation. This includes buying a car, taking out a new loan, or changing jobs. Any of these actions could affect your credit score or debt-to-income ratio and potentially jeopardize your pre-approval.
To wrap up
By following these tips and doing some research, you can increase your chances of a successful pre-approval and ultimately find the home of your dreams.