Financing

Getting a Mortgage Pre-approval in Canada- Do’s and Don’ts

From finding the right realtor to sifting through home listings, fighting bidding wars and navigating open houses, buying a home is a big commitment.

For many Canadians, owning a home is a life-long dream. It’s a dream that requires a lot of planning and hard work if it’s going to come true, however. From finding the right realtor to sifting through home listings, fighting bidding wars and navigating open houses, buying a home is a big commitment.

Of course, most people will need a mortgage to purchase a home. This can be a major obstacle for some, but you can improve the process by getting pre-approved for a mortgage. A mortgage pre-approval will let you know how much you can borrow with minimal risk. This will give you the confidence to get out there and see what you can afford.

How does mortgage pre-approval work in Canada?

Whether you’re looking to buy your first home or you’re an experienced buyer educating yourself on mortgage pre-approvals, we can offer some helpful tips. Let’s take a look at the dos and don’ts of mortgage pre-approval in Canada.

The DOs: 5 mortgage pre-approval tips

1. Make mortgage pre-approval your first step

Most people might think that the first step to buying a home is to find a realtor and look at homes on the market. This isn’t where you should start. The first step you need to take is to apply for a mortgage pre-approval.

If you’ve been pre-approved for a mortgage, you’ll know in advance how much you can spend. Knowing this will streamline the process. When you find a home you are interested in buying, you can move quickly.

Using a mortgage affordability calculator, you can get a good idea of how much you can afford. It’s important to remember that this doesn’t necessarily mean you will get that amount. The bank has the final say as to how much they will lend you, and getting a mortgage pre-approval will let you know your actual hard limit.

How long does it take to get approved for a mortgage in Canada?

If you have all your necessary documentation, getting pre-approved for a mortgage in Canada can be done within an hour. Find a trusted mortgage broker to help you get started.

2. Make sure you shop around for a good mortgage pre-approval rate

You’re going to shop around for the perfect home, right? You need to do the same when it comes to getting a pre-approved mortgage. Don’t expect to get the best deal when you walk into your local bank. Educate yourself, do your research, and compare rates. You can always use a mortgage broker to help you negotiate.

Remember that even half a percentage point on your rate can make a huge difference over time. You can see this for yourself if you use a mortgage calculator – plug in your values and change the rate slowly. You’ll notice the difference

What happens after pre-approval for a mortgage?

In general, there will most likely be a 90 to 120 day period where the rate you were offered will be held for you. Then it’s time to start the house hunt.

3. Gather your documents

Getting the required documents together for a mortgage pre-approval application can take time, so get started early. Be sure to ask your mortgage broker what documents you will need to finalize your mortgage, and get started putting them all together.

A typical list of required documents for mortgage pre-approval

       Identification documents.

       Bank statements – including investments.

       Proof of assets – real estate property, vehicles, etc.

       Proof of income – pay stubs, letter from your employer, etc. If you’re self-employed, you’ll need a notice of assessment.

       Debt – including any student loans, car loans, and credit card debt.

4. Communicate with your mortgage broker

It may sound obvious, but stay reachable and connected with your mortgage broker. They will have questions that you need to be available to answer quickly. Avoid going on vacation or trips where you won’t have access to your phone or email. If you do have to take a trip, make sure you inform your broker.

5. Always read the fine print

When your pre-approval has been completed, your loan officer will forward you a pre-approval document. This will cover your interest rate, loan terms and the total amount you’re pre-approved for. Read through the fine print carefully, and seek help from a lawyer or accountant if you need to.

The DON’Ts – 5 mortgage pre-approval mistakes

1. Don’t get a pre-approved mortgage that’s over your budget

Remember that the mortgage you get pre-approved for could be much more than you can actually afford. Resist the temptation to purchase a more expensive home if you can’t afford it.

Before you apply for a mortgage pre-approval, calculate how much you can afford to pay monthly – including all costs of home ownership. Don’t just apply for an amount equal to your maximum purchase price.

2. Hold off on major purchases

Once you’ve completed your pre-approval application, make sure that your financial situation stays the same until it’s finalized. You don’t want to make major purchases or go into debt during this time. This could actually result in the rejection of your loan application, even if you were pre-approved initially. Keep an eye out on your debt service ratio and stay the course until the end of the process.

3. Don’t apply for new credit

Along with avoiding major purchases, you should also avoid applying for loans or credit cards – and don’t co-sign any loans either. Your debt level and available credit are important factors in determining the outcome of your pre-approval. Don’t risk it

4. Don’t quit your job

Finally, keep your current job – don’t quit or change employment at any time during your pre-approval process. Any changes to your employment status after you’ve been pre-approved can negatively affect your chances of seeing the process through. Hold off on making any such changes until you have the keys to your new home in hand.

You can’t always control your employment status. If you happen to be laid off or change jobs for any reason, it’s best to wait until you’ve regained your financial stability before continuing the hunt for a home.

The takeaway

If there’s one thing you need to remember about buying a home, it’s that planning makes a huge impact. Being prepared and knowing as much as possible beforehand will always help you make the right decisions and find your perfect home.

Getting a mortgage pre-approval is a crucial part of that planning process. Take your time, shop around for a great rate, and get your finances in order. Once you get pre-approved for a mortgage, you’ll have taken that first important step to realizing your dream of home ownership, and saved yourself from potential headaches down the road.

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