August 26th 2021
How to get a pre-approved mortgage
Learn more
When deciding on the type of mortgage you need, there are a lot of factors to consider.
How much money do you plan to borrow? How long will it take to pay it back? Will you need to borrow more at any point in the future?
You have to consider these questions (and more) when applying for a mortgage pre-approval, which is a preliminary assessment of your financial worth. The purpose of pre-approval is to show that you can qualify for a mortgage that fits your needs, and meet the lender's requirements.
Buying a home is a big decision and a significant financial investment. Before you make this big move, ask yourself this series of questions:
- How much can I afford?
- What kind of home do I want?
- How much will I need for real estate closing costs?
- How long do I plan to stay in the home?
- How much money do I have saved?
- How long will I be able to make a mortgage payment?
- What types of homes are available in my area?
- Is this the right time to buy?
- How do I find the best mortgage lenders?
- How can I get a mortgage?
The first step to getting a mortgage is to get pre-approved. Pre-approval is a form of credit that evaluates your credit history and the likelihood that you’ll make mortgage payments on time. Pre-approvals are recommended, but not mandatory (note: you can still get a mortgage without a pre-approval). If you are pre-approved, it means that the mortgage lender ultimately trusts you to pay back a loan and you’ll be able to find a lender that’s more willing to loan you money.
What is a mortgage pre-approval?
A pre-approval is a mortgage loan document prepared by a mortgage broker or agency in advance of a mortgage loan application. They are then granted by a lender.
A mortgage pre-approval is available to help you know what mortgage amount is right for you. The amount of the pre-approval is based on a number of factors, including your credit rating, down payment, and annual income. This is a critical step in home financing.
Where to get a mortgage pre-approval
Mortgage approvals are becoming increasingly convenient. Once confined to a phone call and a visit to a bank branch, these days it's possible to get pre-approval online. Alternatively, whether in-person or online, you can get a mortgage pre-approval from lenders and brokers (lenders loan the money directly to you). They offer different interest rates, which is why it’s best to shop around before settling with a lender. The following types of lenders exist:
- Banks
- Credit unions
- Mortgage finance companies
- Trust companies
- Private lenders
On the other hand, mortgage brokers don’t lend money directly to you. Brokers have access to many different lenders and work to set up the transaction to find the best loan for you. Some mortgage product are only available through brokers, and mortgages vary from broker to broker.
What to provide to your lender or mortgage broker for a pre-approval
If you’re going to get pre-approved, there are certain things that you need to provide to the mortgage lender. These include:
- Your credit score (This can be pulled by the lender)
- Pay stubs
- T1 general tax form (if self employed)
- T4 or T4A
- Notice of assessment
- Letter of employment
- Proof of assets
- ID and Social Insurance Number (SIN)
- Recent bank statements
What to consider during the pre-approval
If you’re considering buying a home, you should be pre-approved as early in the process as possible. Pre-approvals can last up to 120 days and are not binding upon you or your lender.
The amount you’re pre-approved for is the maximum amount available to you by the lender. The approved amount will depend on the property’s value and the amount of the down payment. Since it’s the maximum amount you can get for a mortgage, you can also look at properties of lesser value to not go over your budget.
Don’t forget that on top of the down payment, you’ll also need money for real estate closing costs, moving costs, and ongoing maintenance costs. For down payments of less than 20%, there will also be the added costs of mortgage insurance. Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown corporation that was established in 1946 as the country’s national housing agency. It provides mortgage loan insurance for homebuyers when they purchase a property with less than a 20% down payment.
What to do if your mortgage application is rejected
Even if you received pre-approval, your mortgage application can still be rejected.
Before a lender approves your loan, they’ll verify that the property meets specific standards according to their criteria. Each lender follows its own guidelines and policies. For example, if you have a poor credit history, a lender is more likely to reject your application. If your application is rejected, ask for other options available to you. These options might include lowering your mortgage amount, charging higher interest rates, providing a larger down payment, or getting a co-signer for the mortgage.
Questions to ask your lender or broker about the mortgage pre-approval process
During the mortgage pre-approval process, make sure to ask your broker or lender the following questions:
- How long is the pre-approved rate guaranteed?
- If interest rates fluctuate, does the pre-approval rate change?
- Can the pre-approval be extended?
Once you've got a mortgage pre-approved, you've made it to the next step: finding a home.
