If you’re planning to buy a home in the near future, now is the time to become more familiar with some mortgage basics. Pre-approval, home appraisal, and financing conditions are three key components of any successful home purchase. Knowing how they all work together will help ensure that you’re in control when it’s time to make an offer.

What are the advantages of a mortgage pre-approval?

There are several benefits to getting a mortgage pre-approval before you start home shopping. The main benefit is that it allows you to know the maximum amount you’ll qualify for, so you can avoid looking at homes outside of your budget. This saves time and prevents disappointment later on.

Second, many economists predict that interest rates will continue to go up. If you have a pre-approval, your loan’s interest rate is locked in for a certain period of time (which varies by lender). That way, you’re shielded from any future rises while you look for a home. Just remember that a pre-approval isn’t the same as an approval – so be sure to include the words “conditional on financing” when making your offer.

Mortgage pre approval

How does a home appraisal affect my financing?

Home appraisals serve various purposes. For example, many lenders require one before they’ll approve a mortgage. Appraisers evaluate the worth of a home to calculate the maximum amount of money you can borrow for a mortgage loan.

The reason this is important has to do with the seller. Sometimes, they ask for more money than what the lender says the house is worth. If that happens, you might need extra cash to buy it. Also, if you’re planning to refinance, later on, the appraisal will play a role in how much you can get. That’s because most refinancing plans only allow you up to 80% of your home’s appraised value.

What is a financing condition and why shouldn’t I waive it?

In the current red-hot housing market, many buyers are waiving conditions in their offers to try and beat out competing bids. However, having a financing condition in your offer protects you in several ways during the purchase process.

By getting pre-approval, you allow yourself more time to find the right financing for your purchase. However, it’s important to remember that a mortgage pre-approval is not an exact guarantee that you will be approved for the full value of what you’re hoping to borrow.

The extra few days that the financing contingency provides give the lender time to complete a home appraisal. This is important because it ensures that the home is worth what the seller claims it’s worth and serves as one of many ways to mitigate your risk in making an offer on a property. If you don’t include this contingency in your offer, then you’re putting yourself at risk of losing money if something goes wrong with funding later down the line.

Discuss financing condition

Even though it feels like the world is crumbling, Canada’s housing market is still one of the most dependable markets and best investments. If you’re considering making a change soon (or even in the spring), I would be more than happy to help guide you through the process smoothly while also helping you save money.

If you begin the process early, I can help prevent any rate increases and talk to you about possible financing solutions that could improve your buying power. It’s never bad to get some guidance or even have a conversation about what options are available.