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The Complicated World of Pre-Approvals

The Complicated World of Pre-Approvals

Most home shoppers know that it is important to get “pre-approval” before they start looking around but do they have a true understanding of what they are getting?  Many don’t understand that a standard pre-approval simply confirms that, based on the information provided on an application, they would qualify for up to a $xxx,xxx mortgage.  While there is some comfort in this, it does not guaranty their mortgage qualification until back-up documents are collected & their file is underwritten by the lender.  I’ve heard of some horror stories of home shoppers, in competitive markets, not including a “condition of financing” in their purchase offer because they believe their mortgage pre-approval has guaranteed them financing.

In the Barrie housing market it is standard practice for real estate agents to build in a 5 business day “condition of financing”, this allows their mortgage broker to convert their pre-approval to a “conditional approval”, collect all of the necessary documents (to satisfy the conditions) & have the file underwritten.  In most cases this can be completed within the 5 day window, allowing the home purchaser to then waive their financing condition.

The other advantage is that a pre-approval will normally carry with it a rate-hold for 90 to 120 days.  This can be very beneficial in an environment where mortgage rates are steadily increasing.  Do keep in mind that the home purchase will need to close before the rate-hold ends to lock in that rate.

So the moral of this story is that pre-approvals are an important element of the home purchasing process but don’t mistakenly put too much weight on their reliability when it comes to their guarantees.

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