Growth & Jobs | Mortgage pre-qualification is only the first step to home ownership

Getting pre-qualified for a mortgage is an important milestone for prospective homebuyers; however, Karon Lewis, sales and relationship manager at JN Bank, cautions that, at this point, buyers should be careful not to let their guards down.

He said, although pre-qualification provides buyers with an indication of their borrowing capacity, several important steps remain before they can complete the purchase and receive the keys to their new home.

Lewis advises that buyers should first understand what comes next in the mortgage and home-buying process, including making an offer, preparing the deposit, signing a sale agreement, getting a property valuation and survey done, as well as legal advice and closing the transaction.

Having a clear understanding of these stages, he said, can help buyers remain organised, make informed decisions and avoid unnecessary delays.

“What people should understand is that, once you sign a sale agreement, the clock starts ticking. You may have around 120 days to complete the transaction, but delays can arise along the way. That’s why it’s important to do your research and understand exactly what is happening throughout the process,” he explained. “You also want to, in all of this, retain legal representation because it is important for you to have someone there who can take you through the legal jargon for you to be able to understand what is happening, so you don’t get yourself into any problems.”

The banker also cautioned prospective homeowners against assuming that the maximum amount they qualify for is necessarily the amount they should spend on a home. He said buyers should consider whether the property fits within their broader financial plans, including their lifestyle and future goals.

Lewis said the ongoing costs associated with home ownership, including utilities, maintenance and insurance, should also be considered, warning that failing to account for these costs could leave homeowners experiencing “house poverty”, a situation where too much of their income is committed to housing costs, leaving little room for other financial priorities.

“Qualifying for a mortgage gives you a clear picture of what you can afford, but choosing the right home is about more than the amount you qualify for,” he said, noting that “the first purchase does not have to be the dream purchase”.

The banker further urged prospective homeowners to maintain sound financial habits after receiving pre-approval. This includes continuing to pay bills on time, avoiding unnecessary debt, and maintaining an emergency fund. He said saving should continue throughout the home ownership journey to provide a financial cushion for maintenance, repairs and other unexpected expenses.

“If the bank pre-qualified you for a certain amount based on your income and existing level of debt exposure at that point, you should not go back and take on additional debt, because that could affect what is known as your total debt service ratio,” he said.

“This ratio measures the percentage of your income that can be used to service your long-term debt, such as car loans. So, if you came to me with one car loan and one unsecured loan and I pre-qualified you for a mortgage of, say, $40 million, taking on another car loan and another unsecured loan before completing the mortgage could affect your ability to qualify for the $40 million you were initially approved for.”

Lewis also urged buyers to ensure they are working with a financial institution or mortgage partner that can provide appropriate guidance and support throughout the home-buying and mortgage process, especially after getting pre-qualified. He said having the right partner, like JN Bank which provides up to 100 per cent mortgage financing and up to 40 years to repay, can make the home ownership process significantly less daunting.

“You need a financial partner that is going to put you on a path to financial independence and help you own your journey,” he said. “At JN Bank, we believe home ownership is part of a bigger journey towards financial well-being, and having the right financial partner can help you navigate the process, make informed decisions, and put you in a stronger position to achieve that goal.”