Mortgage 101 – Mortgage Pre-Approvals

This segment Clinton and Todd dive into the importance of the pre-approval process in home buying. They touch on necessary financial decisions to make before buying a home, the limitations of some home purchases and going with reputable mortgage brokers.

Mortgage pre-approval and its importance in home buying

Todd Veinotte
Alright, so love your home. That’s the theme we’re talking. It’s the it’s the month of love, of course. And tied in with loving your home, of course is?

Clinton Wilkins
Is maybe you want to get a new home. Yeah, maybe the home you’re in or maybe you’re renting isn’t right. And what do you need to do to get into a new home in 2024?

Todd Veinotte
And the first thing you need is?

Clinton Wilkins
I would say a pre approval. Pre approval is the way way to go. It would shock you even to this day, I receive offers from people that don’t have a pre approval. Either they’ve made an offer on a property. And the realtors, are like, “Oh, we’re just gonna throw caution to the wind on this one.” And, you know, Clinton, they can get this done. You know, nine times out of 10, we can, but there’s always, you know, those ones that I really wish you would have that pre approval upfront, you would had more of an idea about what your situation.

Todd Veinotte
What goes into a pre approval?

Clinton Wilkins
A pre-approval is really looking at your income, your assets and your credit. And it also comes with a pre qualification and oftentimes a rate hold, you even know what rate you’re gonna get, what your payments gonna look like. So when you do make an offer, you can make an offer with confidence. If it is conventional, so if you’re putting down 20% or more, oftentimes the rate holds are not just a rate hold, it is a real pre approval that once you have a live deal, we know that we’re going to be approved. If you’re putting down less than 20%. Regardless of your pre approval, the file still needs to go to the Canadian Mortgage Housing Corporation, sage and our Canada guarantee to get their approval as well. Obviously, they have their constraints. The one thing I will say is once you have a pre approval, there are some don’ts you should not do. And I know everybody wants to know about don’ts we are we are always focused on the negative here. But one thing you should not do. Number one, don’t go buy a new car. I always hear these people to be like, “Well, I have this car, I’m just gonna trade it my payments gonna be the same as the old one.” Well, you know, sometimes that doesn’t work out to be the same. And getting a new credit account on your credit bureau sometimes can really bring your score down. And depending on where your score sits that could really negatively impact you. So how about just don’t get any new credit, don’t even do any new credit inquiries. If anything, just make your payments. And if you have some debt, just continue to pay that debt down. That’s always the recommendation.

Todd Veinotte
What about furniture for house? Appliances, that type of thing? Come on, you know, the appliances.

Clinton Wilkins
No! Many, many homes come with the appliances, and if the home doesn’t come with the appliances, be in a position that you can pay cash for those appliances, or negotiate those appliances into the purchase price. And get whoever selling you the house to make sure there’s appliances in that home. That’s always the way to go. And as you know, there has been a lot of delays in getting appliances lately, Todd, I don’t know if you’ve tried to buy anything new. But unless you’re buying it and it’s in the showroom or it’s in the warehouse, you’re probably going to be waiting a while to get that appliance. So negotiate the appliances in.

Todd Veinotte
So that can actually impact the deal can it, if somebody goes out and buys by purchasing the car? You’ve seen this happen?

Clinton Wilkins
I’ve seen this and you know why? The one thing I will say is not that many times the file gets reopened, the credit bureau gets rippled. But I’ll tell you the time that it does. If there is a material change to your purchase, the purchase price changes, the closing date changes, you know, there’s a material change where the file needs to go back and underwriting sometimes if the credit bureau is too old, they pull a new credit bureau. Some lenders will pull a credit bureau before closing. And I have seen it that people have gone out and bought a Porsche before their mortgage closes. And suddenly your mortgage don’t work no more.

Todd Veinotte
Yeah, yeah. So sorry. So the pre approval is good for… they’ll guarantee that rate for how long?

Clinton Wilkins
A rate hold with most lenders is good for 120 days. So that’s four months or so.

The importance of reputable a mortgage brokerage

Todd Veinotte
I’ve heard from some realtors. I’ve had a number of friends who are realtors, and they’ll often ask people straight up, or what are you pre approved for before they start to waste their time to go with people? Right?

Clinton Wilkins
Smart realtors, that’s the first thing they ask. And they often ask not only do you have a pre approval? Who are you working with? Yes, not all pre approvals are the same. There’s one of the big five that had a big advertising campaign last spring. That said, you can get a pre approval in 60 seconds. Do you think that’s a pre approval? Or do you think that’s a pre qualification? I think you’re probably just qualified. Yeah. No one’s looked at your file. They’ve not reviewed your income documents. They’ve not looked at your credit bureau thoroughly. They’ve not looked at your assets. You know what? That’s loose. So you if want a pre approval, we’ll pull credit when we pull up credit 100%. Yes, I want to know exactly what’s going on. I want to know what we’re up against. And for me to get an actual pre approval in place for you to know that you have a pre approval we need to have that hard inquiry. Because the bank is not just going to willy nilly say yeah, we’re gonna give you a mortgage without really knowing the full spectrum of this file.

Todd Veinotte
So when you do a pre approval, do you do that as an independent? Is that something you can shop? to a lender? Say, this is our pre approval? That, we’ve done on your behalf.

Clinton Wilkins
Yeah, so we have access to many different lenders that do pre approvals. And the one thing I will say, Todd is not all lenders do pre approvals. And the rate on a pre approval is not always as good as what we can get on a live purchase. So, you know, be mindful of that, the rate on your pre approval is likely going to be a little bit higher. And especially right now, where we’re in a declining rate environment. I am, you know, surprising people very pleasantly, when they’re making these offers to be like, guess what, you had a pre approval at 6%, I can now get your rate at a 5%. So oftentimes, I’m, I’m being the happiness coordinator. But it’s really important to have that pre approval, because what happens if the rates go up? Or, what happens if you make the offer and you’re not, you know, really pre approved. It can be devastating, oh, you know, it’s an emotional transaction, when you are buying a home, there is some emotional connection. I really think about business, I get to do this every single day. But people do have an emotional connection, and they love their home. And we want everyone that you know, has a home, whether you own it, whether you’re renting whatever to love the space that you’re in, and be happy and healthy and secure.

Todd Veinotte
And just because somebody’s pre approved for $750,000 doesn’t mean you have to go and spend $750,000.

Clinton Wilkins
And the pre approval is based on certain factors, right? You know, oftentimes, when we use a pre approval, we’ll use 1% of the purchase price for property taxes. But I’ve seen some strange ones, where, you know, we might have someone approved for $700,000. But then the property taxes are $10,000 a year and the numbers don’t work anymore. So you know, pre approval is really based on a qualification of the information we know at that time. It’s a snapshot in time. And we always hope that there hasn’t been any negative changes to the file. But people situation do they do change, people lose jobs, they’ve changed jobs, they have to buy a car, because they were in a car accident, things do happen. And we try to mitigate these. And you know, a lot of these are not deal killers. But there are some things that people do, that just don’t help their situation, they miss payments, they buy cars, just because they want that that vehicle and they take on additional debt just because that’s never a good situation. The one thing that people do do that make my job challenging, is they don’t have their documents together. And sometimes they’re just moving money around for the sake of moving it. When we have to verify people’s assets. Oftentimes, we can verify it and get a 90 day history. But sometimes people have 13 accounts, and they’re moving all the money around all the time. And that really, you know, almost shows the bank that you’re trying to launder money. You know, it doesn’t make sense for you to move it from this bank, to this bank, from this bank into a TFSA from the TFSA back in your checking account at another bank and just moving it around constantly. You know, I think moving the money sometimes can be a real challenge, especially when there’s multiple accounts at play here.

Todd Veinotte
Alright, so we’ve covered a lot of material as we always have Mortgage 101 your guide to homeownership. But what are some ways that people can get a hold of you Clinton?

Clinton Wilkins
I think the first way, and the most important way is check us out online at Teamclinton.ca/radio. We have hundreds of blog posts. You can check us out on Google, we have the most five star reviews of any mortgage brokerage and I always encourage people, you know, go seek the advice of an unbiased mortgage professional, it’s more important now than ever.

If you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at Teamclinton.ca