Lori's story perfectly illustrates the importance of mortgage preapproval in buying a property. Captivated by a dream condo, he makes an immediate offer, but it is rejected in favor of another preapproved buyer. Patrick, in his enthusiasm, had neglected this crucial step, prompting the seller to choose the more reliable offer.
A mortgage preapproval, issued by a bank or another lender, is a commitment to a loan at a specified rate, based on your income, debts, and credit history. It's not mandatory, but strongly recommended for several reasons:
Time for Research: With preapproval, you benefit from a guaranteed rate for 30 to 180 days, giving you time to find the perfect home without worrying about rate fluctuations.
Budget Assistance: Knowing the maximum loan amount, down payment, and monthly payments helps you better plan your budget.
Increased Credibility: With preapproval, you are taken more seriously by real estate agents and sellers, giving you an advantage over other buyers.
Optimizing the HBP: If you plan to use the Home Buyers' Plan, preapproval guarantees a fixed interest rate for a defined period, ensuring a stable down payment and a tax credit for your RRSP contributions.
To obtain a preapproval, schedule an appointment with a bank advisor. Also, consider the help of a mortgage broker for better loan conditions. Remember, the maximum loan amount is not a goal to strive for, but a safety limit. Base it on your budget, including all your expenses.