The world of real estate may seem complicated to the first time home buyer. After all, there are many terms and steps that they simply haven’t had to take before. Even home buyers who are looking at retirement properties and haven’t bought real estate in years often need a refresher on the vocabulary and procedure. That’s why your trusted Calgary realtor is here to help. Two terms I find first time homebuyers often have confused are pre-qualified and pre-approved.
Becoming Pre-Qualified is often your first step on your way towards owning a home. It involves giving your lender some basic information about your income and debt. The lender will then use this information to give you a rough estimate of your borrowing power. At this point, your lender isn’t going to verify any of the numbers. That comes later. Going through the pre-qualification process is simply a tool for hopeful homebuyers to learn what will likely be the maximum amount they can borrow. It’s an important step for settling on a budget.
Pre-Approval is the next step. Once you’ve been pre-qualified, your mortgage broker will send all of your information to a lender who validate that the numbers you’ve given them are true. If you meet all of their conditions, that lender will then issue you a certificate of approval up to a specified amount. This conditional commitment, means you are already approved for a mortgage if you buy a house at or below that specified price. If you’re buying in a competitive market, this will give you an advantage over other hopeful homebuyers without pre-approval since the seller will know you’ve already been approved. The mortgage rate on your approval will be good for 60-120 days, so even if rates increase after you are approved, you won’t be affected.
Both pre-qualification and pre-approval are technically optional. However, many Calgary home-buying experts suggest that these steps are useful in certain situations. If you know you’ll be looking for a home in the next year or two but don’t have a down payment, being pre-qualified will help you form a ball-park budget when looking at available homes. If you’re further along and getting ready to purchase in the next 2-4 months, than being pre-approved can help speed along that process and make you look more promising to those selling their home.
Whether you decided to become pre-qualified, pre-approved, both, or neither is going to depend a lot on your situation. For advice tailored specifically to you and your unique circumstances within the Calgary real estate market, call me today at (403) 660-5319.