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Proven Advice on Mortgage Pre-Approvals

Jul 1, 2008
If you are thinking about purchasing a new home be aware of the difference between a pre-approval for a mortgage and an actual approval. Most people are unaware of what the difference is between the two and not knowing can end up ruining your life financially.

A pre-approval letter is something you secure from a lender in order to go house hunting. There are generally two ways you can get a pre-approval. You can go to a bank directly and deal with a mortgage specialist. This person will generally get enough of your personal information to pre-approve you for a house. The second way to get a pre-approval is to go through a mortgage broker. They will also take your personal information to pre-approve you; but when you're dealing with a mortgage broker they deal with many mortgage lenders so in most cases they will go into more detail in order to secure the best rate for your situation.

Whether you are dealing with the bank directly or a mortgage broker you must be sure that you have an actual pre-approval and not just a pre-qualifier. The difference is that with a pre-qualifier a mortgage specialist has just asked a bit of personal information and based on what you said they give you an opinion that you should qualify. With a pre-approval they will find out about your job, length of employment, income, type of employment and credit history. They will make sure that you can provide proof of the information you have given them and based on this they will issue a pre-approval. You should make sure that this pre-approval is based on a credit report and verification of all other financial information.

A pre-approval is not a firm letter of commitment from a lender. It holds the rate of mortgage for 120 days so that if the interest rate increases while you are finding a house it won't affect you. Most pre-approvals are contingent on appraisal of the home you want to buy and re-verification of your credit and income. Pre-approvals make a buyer look credible to agents and sellers and they smooth the whole mortgage process.

The most important thing to remember is when you find a house that you like and decide to put in an offer, always put a condition in the offer that gives you a week to obtain financing even with a pre-approval. Do not waive this condition because you have a pre approval; if for some reason the bank declines the mortgage you are still legally bound to purchase the house. In this situation you become vulnerable to a law suit or forced to accept a private mortgage at extremely high interest rates costing you thousands of dollars. The bottom line is if you want to protect yourself never waive that financing condition until you have something in writing from the bank stating that you can do so.

Now that you have found a house and your offer to purchase has been accepted you go back to your mortgage specialist with this document and they will now submit your application of a mortgage for a full approval from the mortgage lender. The lender will approve the property you want to purchase and re-verify your financial information. As long as nothing has changed they will generally issue an approval for your mortgage. Be aware that in Ontario a mortgage approval is only firm as long as all of the conditions of the loan are met right up to the day of closing. This means that after you get your approval you need to provide the proof to verify your personal information. This also means that you should not change your financial situation until after the deal has closed. Don't take out loans to purchase things for your home because this changes your financial situation and there is the possibility that the mortgage lender might back out of the deal.

Purchasing a home is probably the largest financial commitment you will make and if you understand the process and follow the procedure it will be your most enjoyable and exciting purchase.
About the Author
As a mortgage consultant I specialize in assisting clients obtain mortgages. Whether you are looking for a new home and want to get pre-approved , or you are looking to refinance to help get rid of debt, a mortgage broker is the answer. We work for you. For more information go to www.winyourmortgage.ca
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