What Does Pre-Approval Mean for a Mortgage?

When you get mortgage pre-approval, even for a home equity line of credit, this means you’re pretty much guaranteed the money when you need it. You’ll have anywhere from 90 days to 6 months to lock in a specific rate, so you’ll have enough time to go shopping if you need to for the right stuff. If you don’t end up needing a home equity loan, you can just let the application expire. If you still need it by your time is up, you can complete the application and be on your way.

What is a Home Equity Line of Credit?

The first thing you need to know is that a home equity line of credit allows you to draw on the equity in your home without having to move out. It’s different from a home equity loan as you won’t get a big lump sum all at once. You can borrow some money, pay it back, and borrow again, over a set amount of time. This can go on for a while and you can even renew your home equity line of credit if you like. You’ll want to be careful about what lender you allow to service you loan, always get competing offers.

Have a Budget

You’re going to need a budget to make sure that you’re getting the best pre-approval possible. You’ll want to talk to your financial advisor if you have one and look over your budget. How much do you have left over after debts every month? Your debts, including your new HELOC cannot exceed 36% of your income. If you’re trying to borrow half your income’s worth of payments (divide net income by 12 to get a monthly number, then multiply that number by .36 to find out your maximum allowable debt).

Get Your Documents Ready

You’re going to need documents to prove that you’re ready to take on this kind of responsibilities. Many lenders have different ideas about what you need to prove yourself. You’ll almost always need a letter from your employer proving you have a job, bank statements, tax statements for the past 2-3 years, divorce decree including any alimony or child support payments that you need included as income and more. If you’re taking on a gift from a friend or family member to get financing/buy a home, you’ll want proof of the gift like a letter or a deposit statement.

Work with a Broker

You’ll want to find a good Canada mortgage broker to help you find the right lender for your home equity line of credit. They’ll be able to help you scour the lending pool to find the one that’s right for you. You’ve been working hard for years to get that level of equity, you don’t want to just sign it away to the first lender that’s amenable. Make sure that you research and work with professionals so that you can make the most of the equity in your home.

Erin Thompson is a mortgage broker and financial blogger for Homebase Mortgages.  HBM is a Toronto mortgage broker that provides home mortgages, mortgages for the self-employed, home equity loans and lines of credit, debt consolidation, private mortgage lending and second mortgages. You can visit their website at http://www.homebasemortgages.ca/.