Does pre-approval guarantee a loan?

| Buying

The quick answer to this question is no. There’s a lot to qualifying for a mortgage that first-time buyers should know, including the differences between mortgage approval, pre-approval, and pre-qualification. Here’s the mortgage deets to get you up to speed.

What Does “Pre-Approved” Mean?

Mortgage pre-approval is a detailed, formal process requiring the same steps as a full mortgage application. You need to complete the same documents listing key personal financial information, including your assets, total debt, and proof of annual income. We always recommend our clients go through the process when they are serious about buying a home, as it provides the magic number that sets your budget.

Buying your first home? You likely have some questions! Here are a few more posts you might find helpful: 

What Does “Pre-Qualified” Mean?

Mortgage pre-qualification doesn’t involve a credit check. It’s a less involved process, requiring only general financials like your income, debt, and assets, allowing the lender to estimate the mortgage amount you can afford. Pre-qualification is a good step to get a basic understanding of the mortgage process and whether homeownership is realistic right now, finance wise.

Pre-approval vs. Pre-qualification

The main difference between pre-approval and pre-qualification is that pre-approval requires a credit check, while pre-qualification does not. Because of the credit check, if the lender determines you do qualify for a mortgage, they provide a mortgage limit and borrowing rate that typically expires in two to three months. Should that rate drop between the time it is offered and the expiration date, the lender will offer you the better rate at the time you purchase a home, as long as your financial situation hasn’t changed. We share more information about this little nugget below.

Do you have specific home-buying questions? Some of these scenarios might apply to you:

Why Get Pre-Qualified?

Mortgage pre-qualification confirms you’re financially ready to buy a home. Because it’s less formal than pre-approval, it’s less stressful, takes less time, and provides you the basic information you need to assess your chances of qualifying for a mortgage. It tests the waters while helping you understand the types of mortgages available. In most cases you can complete the entire process online and not even have to speak to a lender. You really have nothing to lose and can inform your early decisions to avoid disappointment.

Pre-qualified vs. Mortgage Approval

The pre-qualified mortgage is determined by what you can afford and the best rate the lender is willing to offer based on current rates and your credit score. As long as your financial situation doesn’t change, such as taking on more debt or losing your job, the pre-approval rate remains the same. An approved mortgage is based on the value of the property you’re actually buying, less your down payment and the best interest rate, whether that’s the pre-approved rate, current rate, or rate based on changes to your credit score.

Learn more about how the Bank of Canada and interest rates affect home prices in Canada. Read our blog: How Interest Rates Affect Home Prices in Canada

Why Get Pre-Approved?

Mortgage pre-approval is highly recommended for several reasons, including:

  • You can narrow down your house hunt with a clear understanding of what homes you can afford.
  • You know what you can afford and what that budget gets you.
  • You can lock into an interest rate, which is a good deal when interest rates are rising.
  • Sellers love buyers who are pre-qualified, as it shows you are sincere in your desire to own their home and also are creditworthy.
  • You avoid disappointment or financial disruption during the buying process.
  • You can usually speed up the mortgage approval process with a pre-approved mortgage in hand.

How do you know if the house you’re looking at is the right one to call home? Read our blog: 10 Signs a Home is “The One”

How Long is a Pre-approved Mortgage Good For?

The pre-approved mortgage locks in an interest rate for a specified mortgage amount ranging from 60 to 130 days. Always clarify how long the lender guarantees the preapproved rate, whether that time can be extended, and whether you will be given the better rate if interest rates drop.

How to Get Pre-approved for a Mortgage

You can apply for a pre-approved mortgage at lending institutions that offer mortgage loans, including:

  • Banks
  • Credit unions
  • Mortgage companies
  • Insurance companies
  • Trust companies
  • Loan companies

You will need to provide the following detailed information on your application:

  • Assets such as vehicles, property such as cottages, investments, etc., along with recent bank or investment statements
  • Income, including proof of employment such as a recent pay stub, a letter from your employer, or the past two notices of assessment from the CRA if you’re self-employed
  • Debt levels, including credit cards, child support, lines of credit, student loans, etc.

The lender can provide immediate approval or take 1 to 5 business days to decide depending on your financial and employment history.

We can recommend a mortgage broker with access to a wider range of mortgage products to help make the pre-approval process less daunting.

Are you ready to get the process started? The Christine Cowern Team is here to help! Get in touch today by calling us at 416.291.7372 or emailing us at hello@christinecowern.com today!