How to Get Pre-Approved For A Mortgage in Canada
How to Get Pre-Approved For A Mortgage in Canada?
Getting pre-approved for a mortgage is a great way to show sellers that youre serious. With the housing market set to heat up, even more, this year, competition for homes is fierce and a pre-approval can give you the edge you need to secure the home of your dreams.
To help you understand the process, weve broken down everything you need to know about getting pre-approved for a mortgage in 2022.
Getting pre-approved for a mortgage provides better leverage with sellers and ultimately makes your offer more appealing, especially in a competitive market
Being prepared with all your documents on hand including employment, down payment, finances, and property details will help streamline your approval process
If youre turned down for a mortgage, ask for clarification. From there, you can work on addressing the issue(s) and hopefully continue on your homeownership journey
What is a mortgage pre-approval?
A mortgage pre-approval is where a lender like a bank or credit union conditionally approves you for a maximum loan amount before you make a final offer to buy a home. The process involves a lender looking at your finances to determine the maximum amount they can offer, and the interest rate they are prepared to give you. A successful pre-approval will tell you the maximum amount you can work with and will allow you to house hunt more productively (since you know what you can afford).
Its worth keeping in mind, however, that pre-approval does not guarantee final mortgage approval. Its also not quite the same as pre-qualification, either.
Pre-approval vs pre-qualification
Pre-approval means the bank or lender has actually approved you for a mortgage based on a detailed examination of your finances. It is a conditional commitment, in writing, for a specific loan amount.
Pre-qualification, however, is simply a first step that shows what kind of loans you could be approved, based on a few ballpark details. Theyre both important steps in the process, but pre-approval is more concrete. It shows that lenders have already scrutinized several data points about your financial health, and decided you would be suitable for a loan.
Where can you get pre-approved for a mortgage?
A mortgage lender is an entity like a bank, financial institution, or private lender, that will underwrite and lend you money directly
A mortgage broker is a middle person who deals with multiple lenders, trying to find you a suitable deal. Mortgage brokers generally dont charge a fee.
I will help you find the best rate possible, as well as lend to you directly. Check out our Mortgage calculator to get started and explore some of the best rates available.
Mortgage process documents required
As with many stages of the home buying process, youre required to submit a number of important documents for the final mortgage approval. Heres a sample of what youll need to provide:
In order to verify your employment and income, youll be required to provide any, or a combination, of the following:
Most recent paystub
Evidence of an electronic pay deposit
Signed letter from your employer
Proof of other sources of income, such as freelance work, rental income or investments (e.g., dividends or capital gains)
If youre new to your position or employer, you may also be required to submit similar information from your previous place of employment.
Where possible, hold off switching jobs until after your mortgage has closed. This will help your mortgage experience run a lot smoother
Proof of down payment
Your mortgage approval application also compels you to provide proof that you have the required down payment, which could come from one place or a combination of sources:
Your own savings youll need to provide your most recent bank or investment statement
RRSP if youre a first-time home buyer, you may be taking advantage of the Home Buyers Plan and will be required to provide an RRSP withdrawal statement (See: Use the Home Buyers Plan to Buy Your Home Sooner)
Gift if someone you know (typically a family member) is gifting you the money, that individual will be required to provide a signed letter outlining the amount of the gift, clearly stating that its not a loan and, therefore, doesnt need to be repaid
Proceeds from the sale of another property a copy of the Sale Agreement will be required
In addition to providing proof of your down payment source, youll be required to produce a number of other pertinent items related to your finances, which include:
The amount of your deposit that was used to secure the purchase
Complete list of all of your assets and liabilities
Current bank statement
Most recent tax return
Void cheque or bank account number for your mortgage withdrawal payments
The application also includes a number of key details and documents related to the home youre buying. These include:
Complete address of the property
Amount of property taxes and condo fees (if applicable)
Anticipated heating costs
Original real estate listing
Reports from home appraisal, home inspection, and land survey (if conducted)
Offer to Purchase agreement with the final purchase price and closing date
Contact information for your lawyer
What is the difference between pre-approval and final mortgage approval?
Pre-approval is not the same as a final mortgage approval. Pre-approval typically lasts between 60 to 120 days, after which point youll need to go through the whole process again. Final approval depends on a successful appraisal of the home youre looking at, plus an inspection. If the appraisal is too low, or there have been any significant changes to your financial situation, your lender will probably not approve your loan.
Mortgage pre-approval considerations
The main things to consider in the mortgage pre-approval process are:
Look for the best rate possible. Explore different vendors, rates, and find a mortgage that is both realistic and appealing. Factors like your down payment, amortization schedule, and whether you should choose a fixed or variable interest rate will all have a huge impact on your monthly repayments
Build some room into your budget. You dont necessarily have to purchase a home at the upper limit of your pre-approved amount. Remember, youll also need to budget for closing and moving costs, plus any repairs and upkeep of your new property
Dont negatively impact your finances. Its not a good idea to make other major purchases, leave your current job, or take on large amounts of credit before you get your final mortgage approved. Even after a successful pre-approval, major financial changes like this reduce the likelihood of getting your final mortgage approved.
What to do when youre not approved
The mortgage approval process is rigorous and for good reason. Lenders need to evaluate whether they have confidence in your ability to take on a mortgage and comfortably make your payments.
If you went through the pre-approval stage, the likelihood of receiving final approval from your lender is quite good. If, however, you decided to forgo the pre-approval stage, or if there are other circumstances that prevented your mortgage being approved, youll want to ask your lender what happened. From there, you can work on addressing the issue(s) and hopefully continue on your homeownership journey.
Ask about other types of lenders if youre turned down for a mortgage. Alternative or private lenders have different lending criteria from more traditional lenders, including easier qualification requirements
Some of the most common reasons that get in the way of an outright mortgage approval revolve around eligibility and risk level. Here are some tips to consider that can help get you back on track:
Have a guarantor or co-signer appear on the application this will lessen the risk associated with your mortgage repayment (See: Heres What You Need to Know When Using a Co-Signer on Your Mortgage)
Improve your credit rating this has a significant impact on determining whether youll qualify (See: Do You Understand Your Credit Score?)
Increase your down payment the larger the down payment, the less you have to borrow, which reduces your risk in the eyes of your lender (See: How Much do You Need for a Down Payment in Canada?)
Pay down debt if your debt-to-income ratio is too high, lenders will wonder whether youll be able to afford your mortgage in addition to all of your other debt payments (eg, credit cards, car payments, other loans) (See: Whats an Ideal Debt-to-Income Ratio for a Mortgage?)
Create a budget to help spread your money further, decrease your living costs, look at ways to increase your income, and make all payments on time and in full
Buying a home can be as stressful as it is exciting, but being prepared, educating yourself, being fiscally responsible, and talking to a professional will help ensure that, in the end, your positive emotions ultimately outweigh the negative.
Questions to ask your lender or broker during the pre-approval process
A good provider will guide you through the pre-approval process and advise you on the information they require. However, there may be a few questions you can ask that are more specific to your situation, such as:
What are the ideal term length, amortization schedule, and down payment for me?
Should I go with a fixed or variable interest rate?
Are there any ways I can improve my credit and/or financial profile to help me qualify for a better rate?
If there are any red flags that can stop me from getting pre-approved, what are they? What can I do to rectify them?
Getting pre-approved for a mortgage will make you a more confident home buyer, giving you better leverage with sellers and making your offer more appealing. In addition, knowing the amount you can borrow and what you can afford helps you to focus your search on houses within your price range. Finally, a pre-approval will make final approval much easier, since it represents a conditional commitment by your lender to give you the mortgage you want. When youre ready to make an offer on the home of your dreams, pre-approval will ultimately give you a much stronger chance of success.
Call 613-261-5571 once you find your home and need toarrange financing alternatively answer a few questions using myMortgage calculator
Bank of Canada increases policy interest rate by 75 basis points, continues quantitative tightening
The Bank of Canada today increased its target for the overnight rate to 3%, with the Bank Rate at 3% and the deposit rate at 3%. The Bank is also continuing its policy of quantitative tightening.
The global and Canadian economies are evolving broadly in line with the Banks July projection. The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices.
Global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy. Economic activity in the United States has moderated, although the US labour market remains tight. China is facing ongoing challenges from COVID shutdowns. Commodity prices have been volatile: oil, wheat and lumber prices have moderated while natural gas prices have risen.
Prices have come down from their peak in July
From the National Bank of Canada
Declining transactions in the resale market and rising interest rates continue to weigh on property prices, with the Teranet-National Bank Composite House Price Index falling 0.2% from June to July after seasonal adjustments. This is the first monthly decline since the one seen at the beginning of the pandemic in June 2020. Using the unsmoothed seasonally adjusted index, which is more sensitive to market fluctuations, the decline is even more pronounced, with property prices falling 1.4% from June to July. Moreover, price decreases continue to be widespread across the country. In fact, for all 32 markets where the seasonally adjusted unsmoothed index was available in July, 58% experienced a decline during the month, the same proportion as observed in June, but much higher than those recorded since the beginning of the year. You have to go back to May 2020, at the very beginning of the pandemic when uncertainty was at its peak, to find such a large proportion of markets down. While the Bank of Canada has indicated that it will continue to raise its policy rate and that transactions in the real estate market should continue to decline, we anticipate that the composite index should decrease by 10% by the end of 2023.