Let’s face it, with the current housing crisis going on, it can seem impossible to own a house these days. Though pricier than in the past, it can still be done with proper budgeting and planning. However, not without knowing the basic facts on how to qualify for your new home. When you embark on your journey to this new milestone, it can be tempting to first find your home before determining whether or not you qualify. However, this isn’t always the case. As a potential homebuyer, you’ll have much more leverage by pre-qualifying.
In order to make your home-buying journey as seamless as possible, we compiled a list of everything you’ll need in order to pre-qualify with your bank for a mortgage. By the end of this article, you’ll be confident in your house hunt without the worry of whether or not you will qualify.
Why is pre-qualifying for a new home important?
Before we get started, you may be curious as to why pre-qualifying for a new home is so important. Simply put, the housing market is competitive. Pre-qualifying for a mortgage is essential before making an offer on a new home. Generally speaking, when you’re interested in a home, others are also interested in the same property. By pre-qualifying, you give yourself an edge in many different ways. It gives you credibility and shows that you are serious and financially capable of purchasing a house. On top of this, you provide the seller with a clear understanding of your budget and what you can afford to spend on the home.
Pre-qualified buyers also show agents that they have already completed many of the necessary financial steps. This will speed up the process and give you the upper hand in a housing market that is already moving at an intense speed. To finish things off, many agents will refuse to work with you unless you are already pre-qualified. At the end of the day, you’d be silly to not pre-qualify for a home, as not doing so puts you behind the competition.
What documents do I need?
In order to properly pre-qualify for a home, there are a few documents that you will need. During the process, your lender will need an insight into just how prepared you are to purchase a home. They will be looking at your ability to afford a mortgage and the maximum amount you’ll be able to borrow when it comes to your mortgage. In terms of documents, they’ll request the following:
1. Proof of employment and income
The first, and arguably the most important, document you must first gather is your proof of employment and income. This will include proof of your hourly wage as well as your annual salary. Additionally, your proof should include your length of employment and the current position you are in at your job. If you’re self-employed, you will need a notice of assessment from the Canada Revenue Agency that dates back at least two years.
2. Government identification
Equally as important is some identification. Your identification must be government-issued and can include the following:
- Canadian passport
- Driver’s licence
- Provincial ID card
- Confirmation of permanent residence (if a permanent resident of Canada)
It is important to keep in mind that many lenders may accept your Confirmation of Permanent Residence as proof of your residency and identity. However, in some cases, you may also be asked to show additional identification, such as a passport, from your home country.
3. Details of monthly expenses
You will most likely also be required to show details of your monthly expenses. This will give your lender a general idea of where your money goes on a monthly basis and show that you can still provide payments on your home. This can include the following:
- Credit card bills
- Bank statements
- Tax documents
- Car loan payments
- Auto insurance costs
- Home/tenant insurance costs
- Child or spousal support
- Student loans
- Lines of credit
Once your bank has a look at your monthly expenses and identification, you’ll be provided with a pre-qualification letter. This letter will then state the maximum size of a mortgage loan you can afford. In turn, this will help you make informed offers to sellers and agents.
We hope these tips will help you properly understand how to pre-qualify for your new home. Remember, having proper home insurance behind you is crucial when it comes to being a homeowner. That’s where isure steps in!