Benefits of Pre-qualification and understanding your buying power

Did you know that getting pre-qualified should be your first step on the property journey – even before getting a real estate agent or looking around for properties?

Before you can understand the importance of pre-qualification, you need to understand your credit profile – this is true not only for first-time home buyers but also if you’re buying your first car, or refinancing a bond or loan.

A credit profile is a living document that makes up almost 70% of a financial institute’s decision-making process.  Thereafter they delve deeper into your financial standing and your ability to service your loan, before granting the loan.

Understanding your credit profile

Your credit profile contains information on your credit accounts, how you manage these accounts, how long you have had the accounts and the spread of accounts. All of this translates into your credit score.

We call it a living document because every month the information about ‘you’ changes based on what your creditors ‘say’ about you.

For example, payments made on time will improve your credit score. The higher the score, the better your chances of your application being considered for a home loan.

Red flags are highlighted on your profile indicating late payments, adverse/blacklistings, judgement, debt review, and so on. All of these red flags will lower your score. Keep in mind that some of these red flags are automatic disqualifiers, meaning as soon as a bank sees this, they will not proceed any further with reviewing your application.

Calculating your Affordability

The next thing a buyer must understand is how much a bank is willing to grant you for your application.

Banks take a look at your disposable income – this is the income you have left over after salary deductions, credit expenses, and living expenses. Essentially banks would like to see that you have 30% of your gross income available to service your bond.

A pre-qualification certificate is a great tool in understanding what you can afford by setting a realistic budget while house hunting.

What are the benefits of pre-qualification:

1. You won’t waste time looking for homes in the wrong price range

Mortgage pre-qualification generally provides you with an upper limit on the amount you can potentially qualify for. This could potentially widen your neighbourhood search – which means more properties to choose from.

2. You’re more likely to get an offer accepted

More and more sellers are looking for qualified buyers instead of taking their chances with interested parties that haven’t gone through the pre-qualification process. Being pre-qualified shows sellers that you are a serious buyer and that your offer to purchase is a serious offer as well – and in a competitive market this could be the difference between getting your dream home or having to start your search over again.

3. It will be faster to close on a home

Once you find the perfect property, chances are good you’ll want to move in quickly. And since it can take a long time to get approved for a mortgage and go through the closing process, you could find your timeline is slowed down if you have not started the process.

A true pre-qualification entails a fair amount of paperwork and work, which forms the basis of what the bank will require during the actual application stage. In most cases originators can take up to 3 days to provide a pre-qualification certificate.

Ultimately, buying a home can be quite a stressful, overwhelming and frustrating process when attempting to do this on your own. That is why it is recommending to find a trustworthy and reliable agent who can advise and connect you with the right company to provide your pre-qualification.

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