When looking to purchase a home, it is common for real agents and new home builders to request a mortgage pre approval from potentials buyers. But what is a mortgage pre approval? Simply put, a mortgage pre approval is a face value assessment of a potential buyer’s ability to get approved for a mortgage. The information provides a general idea of the maximum mortgage one can carry. The reason real estate agents and new home builders request this information is to see if you have a purchasing power to buy the home you are interested in. It also gives the potential home buyers a better idea as to the price range in which they can reasonably expect to purchase.
As mentioned above, it is important to note however the mortgage pre approval is a face value approach in determining ones affordability. It lacks the thoroughness and depth that an actual mortgage review process would otherwise have. For example, it does not take into account the debts of the applicants, credit status, employment status, and other important details that are later used to influence the decision on an actual mortgage approval.
A mortgage pre approval is often just an income approach to determine the affordability of a potential home buyer. The general rule of thumb is to multiply the gross annual income of all the applicants by 5. For example if one applicant earns 35k/y and the other earns 25k/y, then the total income is equal to 60k/y. With the general rule of thumb, we can determine that the maximum mortgage affordability is about a 300k mortgage (60k x 5 = 300k).
If you are interested in becoming a home owner and would like to discuss your pre-approval, or simply get more information, please give us a call and we’d be happy to help you along the way.