When you make that first visit to a real estate broker, they will ask, “Have you been to the bank?” or “Have you talked to a mortgage broker?”
It’s amazing how many people respond defensively: “Why do you ask? I have the money!”
Perhaps these potential clients think the question is too personal and not part of the real estate equation or that the real estate broker is somehow judging their self-worth.
Quite the contrary. Real estate brokers must ask themselves this question and they need to know the answer for many reasons. Financing is definitely a part of the real estate equation and a pre-approval is a very important document to have if you are looking for a property.
It’s not about whether you can afford it or not. Although, that is also very important. It’s about how much the bank is willing to lend you, at what rate, and for what type of building. If you have any secrets that might prevent the bank from lending you money, it’s best to bring them to light during a pre-approval process.
The benefits of getting pre-approved
Understanding your financial potential should be the first step in exploring a new real estate possibility. It’s important that you know exactly how much the bank is willing to lend you so you don’t waste your time or the seller’s. Some properties will not allow viewings unless the prospective buyer has prior approval. And, if you do get to the point of bidding, pre-approval can give you an edge if you find yourself in a multi-bidding situation. In the end, it’s faster to get final approval on your mortgage because the bank knows you and has all your information on hand.
There are also some financial benefits to dealing with banks before you start shopping.
A pre-approval locks you into a particular interest rate for a period of time, very useful if rates go up. And you don’t have to guess or top up with additional funds because you know in advance that the money is there.
Real estate brokers deal with numbers every day
Your real estate broker completes a required section in the promise to purchase that deals with the financial part of the deal. This establishes how much of the down payment you will make, the amount of the mortgage, the interest rate, the length of the term, and the length of the amortization.
When the offer is accepted, your broker calls your bank or mortgage broker so they can go through all the necessary paperwork to get final mortgage approval.
In the end, you have to accept the fact that realtors are there to take care of you and your money. Don’t be offended when they ask you financial questions and reveal what you need. You do not need to share any information beyond what is necessary. Your bank will take care of the rest. Your broker works with numbers on a daily basis and will have your best interests in mind. They want to do the deal as much as you do.