Getting Pre-Approved For A Mortgage

When you start looking for your dream home you’ll need a mortgage to buy it. But before getting a mortgage, it’s a good idea to get pre-approved for your mortgage. That way you won’t have any unrealistic expectations when you meet with your realtor. Moreover, a pre-approved mortgage will allow you to act quickly and make offers with more confidence once you do find your dream home.

What Is A Mortgage Pre-Approval?

A mortgage pre-approval is essentially the first step towards a formal mortgage approval. It’s basically a conditional approval that offers you insight into what you can realistically afford in monthly payments. More specifically, a pre-approved mortgage will allow you to: 

• Understand the maximum amount of a mortgage the lender will qualify you for based on the information you’ve given them. 
• Estimate the amount for your monthly mortgage payments
• Freeze an interest rate for a period of 60 to 130 days

Mortgage pre-approvals help you realistically plan for your mortgage payments, and help you learn the value of a home you can afford. It also helps you lock in an interest rate for a period of time ranging from 60 to 130 days. 

What Do You Need To Get A Pre-Approval? 

During the pre-approval process, the lender takes a hard look at your financial situation. You’ll need to provide the lender with the following: 

• Mortgage application
• Permission to run a credit check
• Proof of income and/or assets
• Your monthly expenses and debt obligations
• Employment letter 
• If self-employed: 
  • business location
  • information about the product or service
  • financial strength of the business

A lender will assess all of the above information to ensure you meet minimum requirements for a mortgage pre-approval. 

What Can I Do With A Mortgage Pre-Approval?

If your lender pre-approves you, they will send you a letter that conditionally accepts you for a specified mortgage amount. You can then use your pre-approval to look at homes within that price range (which accounts for the down payment as well). 

When putting down an offer for a house, you can provide your mortgage pre-approval to the seller’s agent. This strengthens your application, as it shows the seller you’re likely able to secure financing. 

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How Long Does It Take To Get A Mortgage Pre-Approval? 

Overall, mortgage pre-approvals have short application processes. Most pre-approvals take a few days, though the time is longer if you have special circumstances. For example, if you’re self-employed, the lender might take some extra time to verify your income and business information. Or, if you have poor credit, the lender might take extra time to deliberate on what they’re willing to offer you. 

You also need to account for the time it takes to gather all the documents you need to prove your income, employment, and identity. Throughout the approval process, a mortgage broker or lender will take some time to consider your application, run a credit check, and assess your locked-in interest rate. 

A great plus for the pre-approval process is the time it saves you down the line when you’re undergoing the formal approval process. Since you would have already submitted all of your documents for the pre-approval, the lender can simply refer to these documents again instead of having you fish around for them come approval time. 

How Long Is A Mortgage Pre-Approval Valid For? 

Mortgage pre-approval validity periods depend on individual lenders. Usually, lenders pre-approve mortgages for a period of 90 to 120 days. You can even request an extension of your pre-approval. 

It’s important to note that your pre-approval is only valid as long as your financial situation remains the same as it was at the time of your application. Here are some scenarios in which your mortgage pre-approval might cease to be valid:

• Job loss
• Job switch/pay cut
• New loans
• Divorce

Mortgage Pre-Qualification 

A mortgage pre-qualification is like a pre-pre-approval. With a mortgage pre-qualification, you’ll need to some share financial information including information about your income, debts, and assets, with your lender. However, you’re not required to provide proof of this information during the pre-qualification. Lenders don’t run credit checks for pre-qualification, and the entire process is relatively quick and easy. 

A pre-qualification is basically an opportunity for you to think ahead before buying your home, You can take this time to talk to your lender about your specific purchase needs, and they can provide you with an estimated mortgage amount for pre-approval.

Mortgage Pre-Approval Vs Mortgage Pre-Qualification

Mortgage pre-approvals and mortgage pre-qualifications are similar precursors to formal mortgage approvals, but they aren’t identical. A mortgage pre-qualification is an early step in the mortgage process and helps give you an estimate on how much mortgage you may qualify for based on basic financial information. On the other hand, a mortgage pre-approval provides you with an accurate amount that you can borrow based on fairly in depth information on your finances.  Lenders will typically commit in writing to a mortgage amount and interest rate, as long as your financial situation doesn’t change. 

Mortgage Pre-Qualification vs. Mortgage Pre-Approval 

Benefits Of A Mortgage Pre-Approval

A mortgage pre-approval might seem like a redundant step at first, but it actually has quite a few benefits. 

1. Plan for your mortgage payments: A pre-approval gives you an estimate of your monthly mortgage payments, which helps you with financial planning over time. 
2. Learn about your mortgage affordability: A pre-approval can tell you how much a bank is willing to offer you for a mortgage. This can help you during your home search by looking at houses you know you can afford. 
3. Locked-in interest rate: You can lock an interest rate for a period of 60 to 120 days. 
4. Strengthen your mortgage application: A mortgage pre-approval shows sellers that you’re committed and serious about buying a home. When you make an offer, the seller may be more willing to accept your offer over someone who doesn’t have a pre-approved mortgage.
5. No cost: Mortgage pre-approvals are absolutely free most of the time, without obligations. 

Where Can You Get A Mortgage Pre-Approval?

You can get a mortgage pre-approval from either a mortgage lender or a mortgage broker. 

Mortgage Lender

A mortgage lender is a body that lends money directly to a borrower. Examples of mortgage lenders are:

• Banks
• Credit Unions
• Caisses populaires
• Mortgage companies
• Insurance companies
• Alternative lenders
• Trust companies

Not all mortgage lenders are the same. Each one might have different criteria for mortgages and certain interest rates. They also might have different interest rates altogether. Shop around and compare quotes from different lenders.

Mortgage Broker

A mortgage broker doesn’t lend money directly to a borrower as a mortgage lender does. They act as a middleman between borrower and lender, and they arrange your transactions and help you find a lender.  

Brokers have a broad network of lenders, so they often offer many different mortgage options and packages to borrowers. However, not every mortgage broker’s network is the same, which means not every mortgage broker will have the same offers. 

Although brokers are licensed, they don’t usually charge fees. Their cut comes from a commission from the lender after any transaction. 

Documents Required To Get A Mortgage Pre-Approval

While the process of getting pre-approve might seem like an intimidating task it is actually not that hard, as long as you have all the right documentations and information. In Canada the bank requires this information from you.

• Identification in the form of a photo I.D.
• Name, address, telephone number of your solicitor/notary
• Proof of employment, salary and the amount of time you’ve been employed
• Bank account information and any information on other investments you might have
• Confirmation of your down payment
• Information on your assets: vehicles, investments, other property that you might own
• Information on all of you liabilities: credit card balances, lines of credit, car loans, student loans

Can You Be Refused A Mortgage If You Get A Mortgage Pre-Approval?

Yes, a lender can refuse you a mortgage, even if you’re pre-approved. Not only must your financial scenario remain the same upon the time for full mortgage approval – the house must also meet certain standards posed by the lender. Additionally, the lender can rescind the mortgage approval offer if you take on too much debt during the course of your pre-approval. 

If you can’t obtain a mortgage even after you’ve been pre-approved, consider the following:

• Apply for a lower mortgage pre-approval amount
• Pay higher interest in the mortgage
• Provide a large down payment
• Have someone cosign with you on the mortgage 

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Bottom Line

Remember that while the pre-approval letter is a promise to you from the bank it is not always a guarantee. It is up to the bank to decide whether or not you are an appropriate candidate for a mortgage. The ball is in their court so to speak but there are a couple of things you can do in the meantime. For one, make sure that you do not acquire any new debt as this will threaten the possibility of you getting a mortgage. Also if you happen to lose your job the bank may reject or restart the pre-approval because your financial situation has changed.