Mortgage pre-approval is a tricky business and often doesn’t mean much if you don’t get the right kind of pre-approval. There are two ways people to get pre-approved for mortgages and one way that is the right (and legitimate) way.
The first way to get “pre-approved” is to provide a mortgage specialist with your stated income, stated down payment, and an estimate of your credit score. You’re not living pay cheque to pay cheque anymore, you have three credit cards with no balance, you finished paying off your student debt, and you’re lucky enough to be receiving a large sum from your parents to help with the down payment. Squeaky clean and ready to go, right? It looks that way, and without looking at official employment documents and credit checks, you step out of the meeting with your advisor and start house shopping.
Then the other shoe drops. You’ve found a place you love, made an offer, and even spent $500 on a home inspection. When you go in to see your mortgage broker or banker, you’re met with a nasty surprise. It turns out that your stated income is not recognized as the same as your actual income because, despite working hours equivalent to full-time, you’re technically a permanent part-time employee. You may have no debt, but your potential credit card debt also counts against you. That gift from your parents? The bank is worried you won’t be able to make payments on a mortgage if you weren’t able to save up your down payment yourself.
So now you’ve spent all this time, energy, and money on searching for homes, making an offer, getting emotionally invested in a house, and even paying for an inspection, to learn that you can’t afford it and may not even be able to for another few years. You’ve wasted your time, both the agents’ time, and the seller’s time. Now you have to start back at square one.
How do you avoid having these kinds of problems in the first place? Get a real pre-approval before you even start looking for homes! You should also draft up a working budget to take into account the monthly expenses home ownership will involve, so that you can reverse engineer what you can afford in terms of mortgage payments. Keep in mind that your pre-approval may (and likely will) exceed what you are actually able to afford. Whether you use a mortgage broker or a banker, come prepared with your documents so that s/he can perform a credit check and go through the necessary steps to get you legitimately pre-approved. After that, you can rest easy knowing you’ll actually be able to afford the homes you’re looking at!
For more information on buying a home or to view Nanaimo listings click here.