Mortgage Pre-Approval in Canada: What it is and How to get Pre-Approved

For aspiring homeowners, mortgage pre-approval is among the first steps that they will take toward achieving this goal. This process is rather straight-forward but does involve a lender making an assessment of your current financial situation and how it applies to any mortgage loan that you might qualify for.

What is Needed When I See My Lender?

The process begins after selecting a mortgage lender to work with. From there, you will meet with the mortgage specialist and provide numerous documents that will give the lender a vivid snapshot of your current finances and credit, including but not necessarily limited to:

  • Social security number
  • Proof of income
  • Tax documents, like W-2s and tax returns
  • Current address of residence
  • Your credit report, which they will need your permission to obtain
  • A list of your monthly expenses

With all of this information, the lender will be able to calculate a figure that estimates how much their institution is willing to loan you for a mortgage.

Is Mortgage Pre-Approval a Guarantee?

While the lender will draw up an amount that they are willing to lend you, this does not necessarily guarantee that you will be granted that amount when you apply for the actual mortgage. If other information relative to your financial circumstances comes to light, you may qualify for a smaller or a greater loan amount.

Additionally, a mortgage pre-approval does not obligate the lender to actually furnish you with a mortgage loan at all. In no way is obtaining pre-approval a guarantee from the lender.

What it does guarantee, however, is a locked-in interest rate for a specified period of time, usually 60 to 120 days depending on the lender. Should you decide to obtain a mortgage with the lender within that allotted period of time, you will not be made to pay a higher interest rate than what was offered at the time of pre-approval.

Why Should I Get Pre-Approval First?

Mortgage pre-approval makes the house-hunting process much easier because you will already know exactly what price range you can afford before you start your search. This process lets you budget appropriately for matters like:

  • Monthly payments toward the loan principal and interest
  • Closing costs
  • Moving costs
  • Maintenance/repair costs

When you have a clear idea as to how much money you will have to work with, you will not have to worry about accidentally looking into properties that are way out of your budget.

Additionally, lenders like to see that their clients have obtained pre-approval first. It shows to them that you are serious about making an investment toward your future by buying a home, and lenders like that commitment.

Pre-approval also carries some weight with home sellers, as it shows that you have strong financial backing. This means that you could potentially have more bargaining room when the seller sees that you have already been pre-approved for a mortgage.

While getting pre-approved for a mortgage might not be a mandatory part of the process, it does serve an important purpose and it does make it easier to get into the home of your dreams. Since mortgage pre-approval comes at no cost to you and no obligation to accept a mortgage from any lender, you have nothing to lose.