A mortgage pre-approval is an important first step in the home-buying process. Having a pre-approval in hand tells a buyer how much they can spend on a home. Not only this, but it also locks in the current low interest rate for up to 120 days, so buyers can shop the market knowing they are protected from rate hikes in the near future. If the rate drops, the lender should honour the new lower mortgage rate when ready to make the purchase.
The amount that a financial institution is willing to lend for a mortgage depends on a number of factors. The lender will check financial standings to determine how much can be borrowed and determine which loans might be best suited. Applying for a mortgage requires a written application and supporting documentation. Here are three things lenders will want to know before giving a mortgage pre-approval.
3 Requirements for a Mortgage Pre-Approval
The lender will check credit score.
A credit score will give lenders an inside look at credit habits and history. This will help them decide if someone is a good candidate for a loan. The scale ranks from 300-900. Your rating gauges your financial health and indicates the level of risk you present to the lender. High scores are good news, and will typically secure a better mortgage rate since you post a lower risk of defaulting on your mortgage payments.
The lender will check your employment history.
Lenders will ask for a list of your past employers, how long you’ve been with your current employer, and what your annual salary or take-home pay is. They want to make sure you consistently earn money with no major gaps in income, and that you can make regular mortgage payments over the long term.
The lender will check your assets and debts.
Be prepared to show your past income tax records, recent bank statements and current debt amounts. This will include credit card balances, car loans, student loans or lines of credit. Lenders want to know your debt-to-income ratio to determine if you can make each loan payment based on the income you earn and your other financial obligations. The lender will also require proof of your down payment.
Many lenders offer a mortgage pre-approval online, so the process is simple. Find a mortgage broker that you’re comfortable with. Don’t know what lender you are comfortable with? Reach out to us and we can set you up with one of our tried and tested mortgage brokers.
