Don’t go looking without one but also don’t rely of one too much! I prefer to call a “pre-approval”, a “rate hold”. Lenders will guaranty a rate for 90 to 120 days while you are out shopping for a home, if the rate drops over that time period you normally will receive the lower rate. Most lenders don’t underwrite pre-approvals & some are auto-generated, so the quality of what you qualify for is in question. This is mainly due to cost of underwriting & the tendency of most pre-approvals to not close.
Building a Budget
On the other hand, they can be quite useful in determining what you can afford; ensuring that you don’t waste your time looking at homes beyond your affordability. But more importantly, will a mortgage (and other household expenses) fit into your budget? You would be best to complete a current household budget, CMHC has good interactive worksheet. Be conservative, but more importantly, be honest with yourself. You don’t want to dig yourself a financial hole shortly after moving into your first Barrie home.
Keep with the Status Quo
You also need to be careful that your situation doesn’t change between the pre-approval & approval. If miss payments, add debt, move your down payment around, co-sign on another property or change jobs you may void your pre-approval.
Expect a Rate Premium
Given that most pre-approvals don’t close, you’ll find that most lenders will add a rate premium to their pre-approvals, usually .10 to .20%. This is not a very big imposition if rates start to soar while you’re shopping for a house.
The best feature of a pre-approval is that they’re free & you are not obligated to the lender when you’re ready to convert to an approval.
If you need help finding a mortgage that fits you best, call 705-737-6161 to talk to a Barrie Mortgage Broker now.