Looking at mortgage rates? Thinking about buying your first home? When you look for a new home, it might be tempting to find your dream home first and then see if you qualify for it. But, that's wrong. You'll have more leverage as a potential homebuyer if you pre-qualify first.
Use these tips to gather the documents the bank needs to pre-qualify you. And then use the mortgage calculators to determine your potential monthly mortgage payment (so you can go house shopping!).
Pre-Qualification: Why It’s Important
The home buyers market is highly competitive. When you start looking for a house, a wise move is to pre-qualify before making an offer on a property. In most cases, other potential homeowners are interested in the same property.
Getting pre-qualified means you've been pre-approved by the bank and you can put in an offer now. And, most lenders will tell you that being pre-approved increases the likelihood that your offer will get accepted.
- Most banks require a pre-qualification letter before they’ll accept your offer.
- You will know how much of a house you can afford (mortgage, associated costs).
- You can shop for homes within your price range.
- Potential sellers will know you’re serious about purchasing their home.
What the Bank Needs to Determine Your Pre-Qualification
When you pre-qualify for a home, a lender will carefully analyze your financial records. They will ask for specific documents to determine 1. If you can afford a mortgage and 2. How much you are qualified to borrow for your mortgage.
Requested documents might include:
- Proof of employment and income (pay stubs, a letter from your employer). Or, self-employment documents (if applicable).
- Bank statements and tax documents.
- All of your monthly expenses (credit card bills, car payment, insurance, and any other debts).
Once the bank has your financial records they can provide you with a letter that states you are pre-qualified. It will include the maximum mortgage loan amount you can afford which will help when you make offers to sellers.
Using a Mortgage Calculator for Your Mortgage Payment and Potential Mortgage
What if you don’t want to pre-qualify, right now? If you’re early in your home search and you only want a ballpark estimate of how much house you can afford, use a mortgage calculator.
Mortgage Affordability Calculator
Use a mortgage affordability calculator to determine how much house you can afford.
Here's an example: You and your spouse make a combined income of $220,000 and you're looking for a house that costs $750,000 in Ontario. Let's say you put $100,000 down. With a 30-year amortization and 3.09% interest, the maximum mortgage amount you can afford is about $884,000.
Mortgage Payment Calculator
Next, use a mortgage payment calculator to determine your potential monthly mortgage payment.
Keeping the same figures above: A $100,000 down payment, 3.09% interest and a property price of $750,000, your monthly payment comes out to $2,831.49.
Ready to Find the Best Mortgage Rate?
Pre-qualifying for your mortgage takes the guesswork out of a new home search. And, when you know how much house you can afford, you can leverage your home buying search. With a pre-approval, you can make offers for homes you're interested in (before someone else beats you to it!). For further assistance or if you have questions, contact Rates.ca.
Fast. Simple. Easy-to-use… Rates.ca’s convenient site puts the lowest mortgage rates right at your fingertips. With a few short clicks, Rates.ca can match you with top financial lenders across Canada. Take the guesswork out of homeownership and make informed decisions about your future home. Explore mortgage rates today!