Applying for a new home mortgage can happen in two different ways. The first is a pre-approval, whereby the applicant has not purchased a home. The second option is once someone has purchased a home and now needs to establish a mortgage to close and take possession of their new home.
It’s prudent that before you shop for a new home that you obtain a mortgage pre-approval. This process will help you to determine what purchase price of a home you should consider. A Mortgage Broker will evaluate your current income, debts, and future expenses and help explain the process home buying and additional costs of not just purchasing a home (closing costs) but owning a home as well (expenses). The Pre-Approval time will typically allow you to collect some of the documents that the lender will require once you have found a home to purchase.
A Mortgage Pre-approval is usually valid for 6 months or less. Most lenders Mortgage Pre-Approvals periods are for 90-120 days. The Pre-approved Mortgage will hold today’s interest rates for home purchase at a later date. If rates do climb you are protected, if rates decline most lenders will provide the lower rate once your home closes. If you do not exercise the pre-approval it simply becomes null and void or alternatively your can extend it at the current interest rate at the extension date.
The second approval is not a “pre” approval, it’s simply an Approval. If you have purchased a home you will likely have a financing condition built into the Agreement of Purchase and Sale, allowing you a specific time to make your mortgage financing arrangements. The Mortgage Broker is able to collect your information and documentation as well as all the details of the home you have purchased and provide this to the lender for approval. Once approved, you will have some mortgage loan paperwork to complete prior to meeting your lawyer for final closing.
It’s recommended that in either situation you review your mortgage financing situation and options prior to house shopping to avoid disappointment.