November, 2017 |

Before you start looking at houses as you start your home ownership journey, many will advise you to visit a lender’s office. But why? You wonder.

Mortgage pre-approval is a process where a potential lender goes through your documents, credit score, financial status and gives you a letter which indicates the amount of mortgage that you can qualify.

To learn more about this process, you can read through our article on Everything you need to know about pre-approved mortgages. In this article, we will cover the reasons why getting pre-approval before house hunting is essential.

To get a competitive edge

When house hunting, remember, you may not be the only one looking for a home. The real estate market is very competitive. You may hear people describe it as a buyer’s or seller’s market. When it’s referred to as a seller’s market, it implies that listed properties are scares and prices are high.

If you find a particular property that meets your desires, having a pre-approval from a potential lender will give you the upper hand.

Your offer may not be accepted

Once you place your offer on a real estate; your desire is to have the seller consider it. However, if you submit the offer without a pre-approval, many sellers just reject it. You need to put the right foot forward when you make an offer.

Sellers usually consider offers that come with a real pre-approval. That is one that the lender has verified your bank statements, credit score, tax returns, etc.

Know your status

Going through the pre-approval process is like paying a visit to the doctor for regular checkups. You need to understand where you stand so that you can comfortably go about the house hunting process.

Don’t let the fear of knowing your status keep you from getting pre-approved. Some people just don’t want to share their private information with a lender. But you need to know your situation to know the price range of houses that you can comfortably purchase.

If the 45 to 60 timeframe of the pre-approval elapses, you should consider getting a second pre-approval, especially if you need more time to find a home. Consult our mortgage broker to help you with the pre-approval process.

Have you heard of cash back mortgages? Well, this is a type of mortgage where the borrower receives a lump sum amount when the mortgage closes. When purchasing a home, on top of the down payment that you need to make, you may also have to set aside some cash for repairs, renovations or furnishing of the house.

A cash back mortgage option gives you the chance to cover this costs if you do not have extra money for this. Depending on the lender, you will receive a cash rebate of a certain percentage. It is usually between 1 to 7 %.

The average sum amount that many borrowers receive is five percent. The percentage is done on the difference between the home value and the down payment, i.e.

Cash Rebate= (Home Value – Down Payment) *Cash Back Percentage

Characteristics of a Cash Back Mortgage

It has a fixed interest rate

The interest rate is set over the term of the mortgage contract. The ability to have variable interest rates in a standard mortgage product can help the borrower to save interest in the long run. This flexibility is not possible with cash back mortgage.

Has higher interest Rate

Lenders have to receive compensation for the additional amount that you are paid up front. That’s the reason why these mortgage products almost always have a higher interest rate than the typical mortgage product.

Penalties

After few years of using the property, one may decide to sell it and use the proceeds to pay the mortgage back before its term expires. When you break the mortgage’s term early, you may have to pay back a portion of the cash back rebate or the full amount. It all depends on the contract.

How to Qualify

For you to qualify for a cash back mortgage, you will need to:

Prove that you have a steady income
Have a solid credit profile
Apply as owner-occupier

At Expert Financial Corp, we strive to match our clients with the optimal mortgage products that meet their needs. Reach out to us if you need a cash back mortgage with optimal interest rates.