Any good real estate professional will tell you that the first step in buying a home is to get pre-qualified by a lender. Once you know what you can (or want) to spend, what your repayment terms and monthly payments look like, it’s easier to spend your time looking at homes that match your personal buying criteria in areas that offer homes for sale in the price range you’re comfortable with.
Most people think their bank is the best option for a mortgage but consider that the person you deal with at a bank can really only sell you the products they have available. Shopping banks on your own can be time consuming, frustrating (if you don’t know the lingo), and even damaging to your credit if you’re allowing each lender to look at your credit history. Consider using a professional mortgage broker. As with anything else there are good brokers and not so good brokers. Find one that has access to all lenders for all situations.
Not all lenders will (favorably) consider a newly landed immigrant, or buyers who have a down payment that comes from money earned overseas, and don’t even start with investors looking to build equity in a 2nd, 4th or 8th property – these rogue river gamblers don’t deserve any cooperation from the banks. (Sense my sarcasm?)
A good mortgage broker will take your application just like a bank and then shop for you to provide options from different lenders – giving you some choices and really using your clout as a borrower to your advantage. Mortgage brokers are paid by the lenders on the size of the loan but you should ask them to disclose the commissions offered by each lender. Know why they are recommending any one lender over another.
Borrowers are not qualified in absolute terms. No borrower is perfect; and nobody is ZERO risk. Those with past credit issues, or slow repayment history may not qualify for a loan at 3% interest where the bank has very little room to accommodate a delinquency. But those same people may qualify (with the same lender) at 6% interest because the higher yield can offset the greater risk. Also, those with really bad credit may still qualify with some lenders if they have a sizable down payment. For instance, your bank says no but you have 50% of your planned purchase price in cash; I’m willing to bet a good mortgage broker would be able to find you a lender within a few hours.
Understand that pre-qualification is not pre-approval. The difference is ‘verification’. A pre-qualification can be done over the phone. A good broker will ask you some very specific questions about your income, debt obligations and your current assets. Using that information and understanding what lenders are offering (at that time) a good mortgage broker will give you a strong sense of whether or not it’s worth applying to get pre-approved. That’s when you’ll need to allow the broker and/or lender to verify your information. Once that happens you’ll be given some choices of loans (years, interest rate, payout and portability terms) for repayment. Normally a lender will keep an offer open for you for a set period of time (90 days is normal) to allow you to shop for a home and take advantage of the rate offered – such that if rates change between the time of your pre-qualification and the time that you buy – your rate/terms are still available as planned.
Now you’re ready to go house hunting! Keep your pre-qualification handy because you may need to show a seller. It’s a crazy hot real estate market (in Edmonton) and you may need it to prove that you can complete a purchase if you find yourself competing with other buyers.