Mortgage Pre-approval

Mortgage pre-approval allows you to start to sort out the finances of the property-buying process before you’ve chosen exactly which real estate property you want to put in an offer for and purchase.

Knowing how large of a mortgage that you have available allows you to narrow down your search, and saves you from choosing a property only to find out that you aren’t able to get approved for a suitable mortgage to make the purchase.

Your pre-approval also allows you to lock-in the interest rate that you’re approved for, and it doesn’t come with any commitments. Applying for a pre-approval is a free process, and it will let you know exactly how much you can spend on a real estate property, and what your monthly payments will be. The length of the pre-approval will vary, but it’s usually at least several months, so this gives you plenty of time to shop around for a property. 

If you decide not to buy a property because you can’t find what you’re looking for, that’s okay, you don’t have to accept the mortgage offer if you don’t end up finding a real estate property. You can keep looking for a property, the only thing that changes is if the interest rate improves, you can apply for a new pre-approval and possibly even end up with a better interest rate. On the other hand, if rates get worse, you are in a good position because you’re locked into a better interest rate. Mortgage rates probably won’t shift a ton in either direction over the course of a month or two, but it doesn’t hurt to get the best rate that you possibly can, even a fraction of a % can make a difference in the long run.

Does mortgage pre-approval affect credit score?

There are two types of ways that lenders can ping your credit score. There are soft inquiries and hard inquiries. Soft inquiries won’t have an impact at all, and the occasional hard inquiry is just fine and it won’t have an impact either, as long as you aren’t frequently making hard inquiries against your credit score. Once you have the mortgage, it can have an impact on your creditworthiness, because it means you have a large financial obligation for many years to come, but paying it on time and sticking to the terms of your mortgage is a positive in the long run. Once you have the mortgage, that’s the biggest thing you’ll ever need your credit score for anyway, in the vast majority of cases for most people.

How do I get pre-approved for a mortgage? What’s the process?

There are a few things you’ll need to have ready before you apply for pre-approval, and they are mostly based on proving things like your identity and your ability to make your payments.

You’ll need to provide a photo ID, proof of your income (T4, income tax returns, etc), proof of assets that you own (like stocks and bonds, cash accounts, other real estate holdings, etc), liabilities and other debts you have credit cards and lines of credit, verification that you can afford the down payment, information about your legal representation, and possible more – it may vary depending on the lender and your situation, but the aforementioned items are things you’ll want to have handy at a minimum.

How long does it usually take to get pre-approved for a mortgage?

Once you’ve gathered everything you need and submitted your application for pre-approval, the amount of time it can take to hear back (whether you’ve been approved or not, and for how much) can vary based on a handful of factors. Here are the main things that will have an influence on the decision and how long it takes to get a response: 

  • Having all of your paperwork in order
  • Giving accurate information to the lender
  • Knowing what you can afford based on a pre-qualification calculation
  • When you apply (Early in the morning, end of the day, Friday afternoon, etc)

It can take anywhere from a day to a few days to hear back when you apply to get pre-approval for mortgage financing, but it can take longer if they have to verify any of your information, or if any of your documents raise any concerns.

Sometimes, it can happen very quickly, especially with modern automated systems and online applications. Once it’s done, your interest rates will be determined, and the maximum amount of your real estate property’s purchase price will be decided. You can always accept a lower mortgage amount, which we’ll discuss in a moment.

Can you get a mortgage pre-approval online?

Mortgage pre-approvals have never been easier. There are online pre-approvals where you’ll enter your information, but you may need to visit your bank branch to provide supporting documents. Starting your application online can save you a trip, and lets you get started on your own schedule. After applying for pre-approval online, you can expect to be contacted shortly by a mortgage advisor from whichever company you applied with.

Other important things to know about mortgage pre-approval

Once you have been pre-approved, you aren’t out of the woods quite yet. After pre-approval, you can make an offer on a real estate property, but before you’ve approved for the mortgage and are able to proceed with the purchase, the lender will ensure that the property is suitable and that it meets their conditions for a mortgage. This can happen due to a handful of factors, such as if the asking price is a lot higher than the appraised value of the property because that puts the lender in an awkward position if they are forced to sell the house if you default and they end up having to take a loss. Another factor could be that the real estate property has outdated wiring (knob and tube) that poses a danger risk, if the property is filled with asbestos, or if it’s a heritage property which means that the government has deemed the property to be historically significant, and put certain restrictions in place. The aforementioned factors won’t necessarily disqualify you from being able to purchase the property, but they could create hurdles.

You don’t have to buy a real estate property that costs the absolute maximum amount of money that you’re pre-approved for. It can be tempting to see a big number on the approval documents and to start shopping around at the higher-end of that, but just because someone is willing to give you the money to buy something, that doesn’t necessarily mean that you need to go out and buy it. It would be like shopping for a watch when you have a credit card with a $20,000 limit on it. You’re probably not going to go and buy a $20k watch just because you’ve got the credit to do so, right? Granted, this example is flawed because the watch will most likely depreciate in value and the property will likely appreciate in value, and you need somewhere to live much more than you need a fancy watch. Nonetheless, the point is that you’re still spending the money when you take out the maximum that you can for a mortgage, and you’re spending a lot on interest, too. Getting a place below your means is one of the best ways to build wealth, especially if you’re able to invest that extra money and watch it grow. If you place a high value on having a nicer real estate property, then it can certainly be worthwhile to spend more, but just remember that it comes with a steep cost.

There’s another process called a pre-qualification, but it’s not the same as a pre-approval. In the same way that a pre-approval is a step before getting the actual mortgage, a pre-qualification is a step before the pre-approval that can give you a rough idea of what you might qualify for without going through the pre-approval process. It’s even less committal than a pre-approval.

Once you’ve got your pre-approved mortgage, it’s time to start shopping for your property. To summarize, start by using a pre-qualification calculator, then get pre-approved for a mortgage, determine a purchase price you’re comfortable with after the pre-approval process, fill out a mortgage application, make sure you’re comfortable with the mortgage rate after you qualify for a mortgage, keep your pre-approval mortgage papers in order, find a real estate property, buy it, move in, and enjoy your new property!