Mortgage pre-approvalOctober 9, 2018
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Before you start your search for a new home, it’s a good idea to get pre-approved for a mortgage. It will show real estate brokers and sellers that you are a credible buyer.
Stéphane Angers, a mortgage advisor at RBC Royal Bank, walks us through some of the main points to consider as part of this key step in the mortgage qualification process.
Ability to pay
To begin, the best financial strategy is to discuss your needs with an advisor. They will determine the ideal loan amount based on your down payment, your (ideally steady) income, and your debt level.
Car loans, student loans, and credit card balances all factor into the calculation. Obviously, the lender will want to check your ability to repay the loan. “If you’re carrying too much debt, you’ll need to build a savings plan,” said Mr. Angers.
That’s why it’s so important to have a good credit rating. In many ways, your credit rating is like a barometer of your financial health. If you’ve had some bumps along the road, you can improve your rating by paying your bills in full and on time and paying off your debts as quickly as possible. A mortgage advisor can also guide you on steps to take to improve your rating.
A bigger down payment can have a positive impact on pre-approval, but doesn’t automatically guarantee that you’ll qualify right off the bat. Mr. Angers strongly recommends his clients put down 20% of the property value. “Any lower and its’s the mortgage insurer’s rules that dictate the terms. Ideally, you shouldn’t need mortgage insurance,” said Mr. Angers. The government requires financial institutions to insure all mortgages with down payments of less than 20%.
“Telling your broker and the future seller that you’re pre-approved ensures you’ll be taken seriously during the buying process,” said the advisor. Sellers may also be inclined to sell more quickly if the buyer is pre-approved. Ultimately, mortgage pre-approval can give you more leverage to negotiate the price of your future property.
Interview with Stéphane Angers, mortgage advisor at RBC Royal Bank, by Josianne Desjardins.