Mortgage plays a crucial role in the life of any Canadian (mostly) that dosen’t have enough budget to purchase a home without the help of any financial institution or a lender, as buying a home is expensive.
A Mortgage Pre-Approval is a mortgage process where the lender scrutinizes various factors and then estimates the money they can lend you for owning a home.
These factors involve:
- The borrower’s income
- The borrower’s pending debts
- The borrower’s credit history and score
These factors allow the lender or financial institution to evaluate whether you can pay your mortgage back and if you are trustworthy.
Having a mortgage pre-approval helps you have a rough idea as to how much credit a lender or financial institution will lend you and the interest rate you have to repay.
A mortgage pre-approval tenure is up to 120 days.
Working of a Mortgage Pre-Approval
A mortgage pre-approval is a simple process where you submit several documents to the lender or financial institution from where you seek that mortgage, and they evaluate how much money you qualify for and the interest rate associated with that loan.
This pre-approval process helps you in evaluating:
- Interest Rate of that mortgage.
- Monthly premium of that mortgage that you have to pay.
- The maximum amount of mortgage that you qualify for.
- After your mortgage pre-approval process gets approved, the lender will approve an interest rate of your mortgage for 120 days.
- If the interest rate goes up in between these 120 days, you’ll still get the rate the lender has approved, and if the rate goes down, you can negotiate it before closing the deal.
- A pre-approval tenure is generally 90 – 120 days.
When you apply for a mortgage pre-approval, it usually takes one or two days for an answer. When it is approved, you will have an idea of how much loan you can get and the type of house you can afford.
The Ideal Place To Find A Mortgage Pre-Approval
Any financial institution or lender providing a home loan is the place where you can get your mortgage pre-approval done.
- Canada’s Big Banks: Scotiabank, BMO, RBC, Toronto Dominion Bank, National Bank, and CIBC.
- Credit Unions: Meridian Credit Union, Access Credit Union,and Vancity.
- B Lenders: MCAP, MERIX Financial, and First National Financial.
You can directly contact them for getting your pre-approval, or you can connect with a mortgage broker that will do all the hard work for you.
A mortgage broker will search through different lenders and financial institutions and get you the pre-approval that suits you financially.
You have the option of getting a pre-approval done online, so if you’re not comfortable doing it physically, you can still get approved.
For a smooth mortgage process, you should have the necessary documents ready that your mortgage broker requires (if you opt for one).
Information Required For A Mortgage Pre-Approval process
No matter where you apply for a pre-approval, you must provide this information:
- Identification documents.
- Proof of income and Employment Letter.
- Tenure with your current employer and the position of your job.
- Any additional Assets and Income.
- Remaining Debt.
- Bank Statements
- Down Payment
- Credit Report access permission for your lender.
- For self-employed: Notice of Assessment from CRA (Canada Revenue Agency).
Tips to Remember
- Before applying for a mortgage pre-approval, you must have a healthy credit score, as the financial institution or a lender will run a hard credit check to evaluate your finances.
- This hard credit check can decrease your credit score by a few points, so it is a healthy practice to have a good credit score, and if you have one, you can get the best interest rate in the market.
- You must also apply at multiple institutions simultaneously because if they run a hard credit check at the same period, your credit score won’t be affected.
Things That Occur After Your Mortgage Pre-Approval Gets Approved
There are several scenarios after your pre-approval gets approved:
Mortgage Pre-Approval gets denied
If your mortgage pre-approval gets denied, you should apply with a different lender. If you did the process yourself, try hiring a mortgage agent to ease your process.
Hiring a mortgage agent increases your chance of getting a mortgage approved.
Finding a person as a co-signer having a healthy credit score can increase your chance of getting your mortgage approved.
If your pre-approval amount is low
There are chances where the amount of mortgage that you get is lower than expected.
In such cases, you should try to increase your credit score to increase your trustworthiness.
Try to save for a huge down payment as paying a 20% down payment will avoid buying a mortgage default insurance that adds to the amount that you have to pay. This will save you extra money and save you from additional interest on your loan amount.
Sufficient pre-approval amount
If the amount you’re getting is sufficient you should search for a house in that budget.
You must formally apply for a mortgage if you decide to purchase a home. The amount you are approved for may differ if your credit score deteriorates since you were pre-approved.
A Mortgage Pre-Approval can be a crucial step to understanding the budget that you have for your dream house. You can own your dream home if you find the right one.