Mortgage Blog
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Let Me Shine a Light on Pre-Approvals.
April 30, 2024 | Posted by: Amanda Bible
Buying a home is likely one of the largest purchases you will ever make so you will want to make sure that you have as much information before you start house shopping. I hate hearing about people falling in love with a house that just isn’t within their reach.
Pre-qualification and pre-approvals are used interchangeably within the mortgage world. Some will make one sound more guaranteed than the other but it’s not what you call it but what is done that makes the difference.
What you want is someone who looks at your application and asks for all your documents as well as looks at your credit bureau.
You see lenders don’t necessarily calculate your income the way you or the CRA does. Your T4 slip says you made $50000 last year so that is what you would say is your income right?
Not necessarily, are you paid hourly? Do you have guaranteed hours? If not, then most lenders will want to use a two-year average of your income to determine what income they would use in your application. Did you know if you have a bonus, but it’s only been one year that might not be considered either?
If the person you are asking for isn’t asking for documentation, they aren’t looking at anything more than the information you provided. In that case, you’re not getting anything more than a rate hold, and it isn’t much better than what you could calculate on any number of mortgage sites.
You want someone who is going to look at everything and tell you real numbers as well as the limitations of those numbers.
If rates were to rise that could reduce how much mortgage you could get so knowing what rate was used when calculating your pre-approval matters.
What was used for property taxes in their calculations? If the house, you are looking at has higher property taxes this will affect your ratios and potentially your pre-approval as well.
You want to have a mortgage professional who will go over everything from how much to how it was calculated. Be sure you know as much as possible including the limitations of the pre-approval before you put in an offer and unless you have the money to pay cash for your purchase a condition of finance is always recommended. More on conditions of finance and how they protect you in another post.