Real estate in Quebec
Mortgage pre-approval: a useful process SALE
Are you about to start the process of buying a property? Whether it’s a house or a condo, most of us need to borrow a fair amount of money to get started. This usually takes the form of a mortgage loan from a financial institution.
A mortgage pre-approval, also known as a pre-approved mortgage, is a commitment document from a lender to you. It establishes a fixed rate for a few months (generally between 30 and 180 days), while you store around for the house or condo of your dreams. It’s a very important document, because it allows you to start looking for a property with concrete facts about your financial capacity.
Mortgage pre-approval: a useful process
The mortgage pre-approval document confirms your financial capacity to purchase a property. In detail, it indicates the precise maximum loan amount your lender is able to grant you, depending on your situation. With this document in your pocket, you can plan your purchase with a precise budget.
For those who own the property you’re interested in, your mortgage pre-approval is a token of credibility that will encourage sellers or real estate brokers to offer you better service, since they’ll take you directly seriously. This document also gives you a wider range of negotiating leeway when discussing the price of the property. Last but not least, the mortgage pre-approval document offers you the great advantage of being guaranteed a set mortgage rate for a certain period of time. This means you can take advantage of an attractive rate, while giving yourself time to find the property of your dreams.
How do I get pre-approved for a mortgage?
To get pre-approved for a mortgage, start by consulting a mortgage consultant at a financial institution or a mortgage broker. This person will define your needs and financial situation, and work with you to establish your purchasing strategy, including down payment, amortization period, interest rate (fixed or variable), etc.
What documents do I need to provide?
In order to define your needs and financial situation for financial pre-approval, you’ll need to provide certain documents confirming your financial capacity. Your lender will take several factors into account before granting your pre-approval:
- your active and passive income;
- your employment income;
- your credit file.
Once you’ve found your dream property, your lender will also set out the conditions for obtaining your mortgage. For example, your lender can ensure that your financial situation has not changed by adding a clause on this subject to the mortgage pre-approval document.
Income properties
The acquisition of an income property with five or more units is different from that of a smaller income property. In fact, if you wish to obtain a mortgage for a one- to four-unit building, you need only obtain a residential loan, as is the case for a regular dwelling. However, if the building you wish to purchase has five or more units, you’ll need to obtain a commercial mortgage with different conditions.
Commercial mortgages in brief
The downpayment required for a rental property in a city of over 10,000 inhabitants (when the owner is not a resident) is 20% to 25% of the purchase price, which can already represent a significant sum. In a smaller town, the down payment required by financial institutions, for example, will be even higher, as the risk is greater when the town is at the mercy of the surrounding industries.
For a commercial mortgage, the qualification criteria are generally more demanding than for a regular home. Your lender will want to know more about the property:
- the net value of the property;
- debt coverage ratio to assess your eligibility.
Since commercial mortgage rates vary from case to case, the services of a mortgage broker can be a great help in getting you where you want to be. All in all, it’s very difficult to get pre-approved for a mortgage on an income property, because financial institutions and other lenders rely not only on your credit record, but also on the property’s specific performance.
Buying a house or apartment is therefore much easier, especially with a mortgage pre-approval in your pocket. You’ll know the maximum amount you can afford to purchase your home, and you’ll save time in your search!