The thought of buying a home can often lead to the worry of applying for and getting approved for a mortgage. Finding a lender offering a suitable home loan, obtaining all the necessary documents and finally preparing the application can become quite stressful. And you are never sure what to do before and after you find the home you want to buy. Fortunately, there are several ways to break down the mortgage application process and find out your chances of getting the loan approved.
One of these is pre-approval, which can involve checking your finances but not a credit check. Another is mortgage approval in principle, usually based on a full assessment of your finances and credit history. While none of these items confirm that the lender will approve your mortgage application once you find your home, you can get a more concrete estimate of your budget with approval in principle. A lender will not expect your financial situation, credit rating, and the type of home you want to buy to change significantly between getting approval in principle and finalizing the application.
How do I get approval in principle for a mortgage?
When preparing to apply for a home loan, you may have selected a few lenders who offer suitable home loans, perhaps with the help of a mortgage broker. You should check to see if any of these lenders also grant approval in principle to the mortgage before you apply. Also, the application for approval in principle is not much different from the mortgage application itself, only the specific documents relating to the purchase of your home being added to the latter process.
In short, the documents needed to apply for mortgage approval typically include identity and income documents, financial statements listing your assets and liabilities, a summary of your usual household expenses, and a rough description of the mortgage. type of property you want to buy. In addition, the lender will likely ask you for permission to access your credit report. Based on this information, the lender will assess your borrowing capacity and reimburse the amount needed to purchase the home of your choice.
If you are approved in principle for the mortgage, the lender will issue you a certificate confirming this and inform you of the amount you can borrow. Generally, a mortgage approval in principle can be valid for 90 to 120 days depending on the lender, with extensions allowed in some cases. If you change jobs or face unforeseen expenses, you should let your lender know, as this may change the terms of your approval in principle for a mortgage.
What if the lender does not offer mortgage approval in principle?
The lender you select may not offer mortgage approval in principle, or you may not be able to find a lender who does. You can check to see if any of these lenders will offer you pre-approval, which can at least give you an estimate of how much you can borrow. Alternatively, you can wait until you find a property before applying for a home loan. However, a buyer with financing is more attractive than without.
Even if you don’t get any kind of pre-approval or approval in principle for the mortgage, you can use an online calculator to calculate your borrowing authority. This can then help you budget for your property search. You can also consult a financial advisor if you are unsure of your estimated spending or how much you need to save.
Consider talking to a mortgage broker before deciding to apply for a home loan on your own. Brokers generally have an insider’s perspective on the mortgage industry and may know other lenders than the ones you have considered.