Buying a new home is exciting, but it can feel overwhelming if it’s your first time going through the process. Before you can find for your new dream home, you are going to need to be pre-approved for a mortgage.
What is Mortgage Pre-Approval?
Mortgage pre-approval is defined as an initial evaluation of a borrower (that’s you), by a lender (the group or financial institution that is giving you the loan) to decide whether they can give you a pre-qualification offer.
What’s the point of Mortgage Pre-Approval?
A mortgage pre-approval will allow a mortgage-lender to figure out how much money they will lend you and what interest rate they will charge you. To do this, the lender will look at your assets (what you own), how much money you make, and how much debt you have (credit cards, student loans, car loans/ leases, etc.).
Mortgage pre-approval will show you:
- How large a mortgage you can potentially get (this is not a guarantee just a guideline)
- How to estimate what your mortgage payment will be
- Lock in an interest rate (generally for between 60 and 120 days depending on the lender)
When you’re ready to put an offer down on a house your real estate agent, and the seller will want to see a pre-approval letter to show the likelihood that you will be able to close the deal.
What Do I Need to Show My Lender for Pre-Approval?
A potential lender will look at many things when deciding whether to pre-approve you. You will need to provide your lender with
- Proof of employment
- Proof that you can afford a down payment and the closing costs of your new home
- Information about other assets you own.
- Information about your debts and other financial obligations.
What Are the Steps for Mortgage Pre-Approval?
Mortgage Pre-Approval sounds intimidating, but it’s actually an easy process. You have to make sure to provide the correct information and the supporting documents they need; the rest is up to them. To break it down for you, here is a list of the steps you’ll need to take to make sure all your information is correct and to secure the necessary documents.
Step 1: Check Your Credit Score
Although your lender will pull your credit information themselves, it’s a good idea to get a copy of your credit reports and credit scores on your own, so you can check for any problems or mistakes, and take care of them before you start the process.
In Canada, you can get credit reports from both Equifax Canada and TransUnion Canada, and you can do it by mail, phone, or online.
Step 2: Gather Your Personal Documentation
You will need to bring the following with you to show your lender:
- An official identification– A passport or driver’s license is acceptable proof.
- Proof of Employment– Most lenders will accept a current pay stub and a letter from your employer as proof. If you are self-employed, you will need Notices of Assessment from the Canada Revenue Agency for the past two years for your proof.
- Proof you can pay the down payment– You will need copies of current financial statements, including bank account statements and investments you have. You do not need to bring your credit information as the lender will pull it themselves.
Step 3: Wait for Approval
Depending on the lender’s pre-approval process and the underwriters, the whole process will take two weeks to a month. Some lenders use automated underwriters, which speeds up the process to a few days or even a few hours.