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.
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:
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.
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:
A lender will assess all of the above information to ensure you meet minimum requirements for 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.
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.Â
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.
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:
A mortgage pre-qualification is like a pre-pre-approval. With a mortgage pre-qualification, you’ll need to 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-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 | Mortgage Pre-Approval | |
| Purpose | Early, rough estimate of the mortgage you can afford | Written commitment from a lender on the mortgage they’d approve you for |
| When Do You Need It? | As soon as you decide to you would like to purchase a home | Within 120 days of your home purchase |
| Interest rate hold | Interest rate is an estimate | Interest rate is committed to in writing by the lender |
| Conditions | Depends on your financial situation | Seriously depends on your financial situation – pre-approval can be revoked in some cases |
| Required documents | Casual answers to questions | Proof required to verify employment, income, assets, etc. |
| Credit check | Not required | Required |
| Commitment | No commitment | Locked-in commitment to a mortgage amount and interest rate for 90 to 120 days |
A mortgage pre-approval might seem like a redundant step at first, but it actually has quite a few benefits.
You can get a mortgage pre-approval from either a mortgage lender or a mortgage broker.
A mortgage lender is a body that lends money directly to a borrower. Examples of mortgage lenders are:
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.
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.Â
Although brokers are licensed, they don’t usually charge fees. Their cut comes from a commission from the lender after any transaction.
While the process of getting pre-approved might seem like an intimidating task it is actually not that hard, as long as you have all the right documentation and information. In Canada, the bank requires this information from you.
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, but 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:
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.
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Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.
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