If you’re planning to purchase a home now or in the near future, getting pre-approved for a mortgage is the perfect place to start. Although it isn’t a mandatory step, getting pre-approved offers a range of advantages that will guide your home search and help you set realistic expectations.
So, what is mortgage pre-approval?
A mortgage pre-approval is a commitment from a lender to hold a rate and mortgage product for you, the borrower, for up to 120 days. If you buy a home within that 120-day period, this pre-approval can convert to a mortgage approval if conditions are met. Pre-approval is very useful, especially if rates go up. Getting pre-approved for a mortgage means that your lender has verified your financial stability and has conditionally approved your eligibility for a mortgage loan. By reviewing your credit report, financial situation and financial documents, lenders have a better idea of your level of risk as a borrower and use that information to decide whether or not they are willing to give you a loan.
Why do people get pre-approved?
Getting pre-approved helps buyers understand what they can afford from the start and simplifies their home search so that they’re looking in neighbourhoods within their budget. Once buyers know how much they qualify for, they can also begin planning their monthly payments and other household expenses. Not to mention, it gives buyers an advantage in the event of a bidding war as they will know exactly what they can afford.
As mentioned earlier, having a 120-day rate hold is beneficial, especially in an environment where rates can go up. When working with a company like ours at Homewise, we will look for your best options on pre-approval from our 30+ bank and lender partners. However when you do buy, you are not locked into your pre-approval and you are not bound to that lender. If a better option for approval is available, we will work to get that for you.
Now that you know the benefits of pre-approval, you’re probably wondering how the process works. Here’s a simple breakdown of where you can get pre-approved for a mortgage, what’s involved and how to start.
1. Find a mortgage company to work with.
First things first, you’ll want to figure out where to get your mortgage. You can either go directly to a financial institution like one of the big banks, a credit union or a monoline lender, or you can shop multiple banks and lenders all at once with a company like us at Homewise. A recent study we conducted found that more than half of prospective home buyers in Canada don’t shop around for a mortgage. This is something that can cost prospective buyers thousands of dollars down the line. Understanding the various mortgage options available can not only save you a lot of money in the short- and long-term, but help you make a more informed decision.
2. Have an idea of your home affordability and gather your documents.
Review your savings and get a high level idea of what your down payment will be. When you know how much you can put toward your home, this will give you insight into what your budget will be and the types of homes and neighbourhoods you’ll be able to afford and buy in. If you’re unsure, check out our affordability calculator to get a high level view ofyour maximum mortgage amount and home affordability. The calculation is just an estimate, that is why, it’s important to get an official pre-approval and to get all of the required documents in order for your pre-approval application. These include:
Proof of employment ( including a recent pay stub, and your last two years of tax documents)
A credit pull (we can do that for you) If you are self-employed, you will need to provide a Notice of Assessment from the past two years.
Before you move on to your pre-approval, consider whether you’ll be making your home purchase alone or with someone else, or if you need to have a co-signer such as a parent who will be helping with the purchase. If you’re applying with another person, ensure they have all of their documentation in order, as outlined above.
3. Get pre-approved
When you’re ready to get pre-approved, contact your preferred mortgage company to complete your pre-approval application and understand how much you’re eligible to borrow. At Homewise, we’ve made the process quick and easy with our 5-minute online application. You’ll then be set up with a personal Advisor from our team who will guide you through the process, answer any questions you have and help you get your best options from our 30+ bank and lender partners.
4. Establish a budget to get final approval.
Once you're pre-approved, you'll have good insight into your maximum home affordability.
However, it’s important to factor in other costs into this amount so you don’t spread yourself too thin. For example, closing costs and other household expenses that come with purchasing a home should be considered into this figure. We also want our clients to remember that pre-approval is never 100% and lenders can review your application at any time before your home closes. To ensure that you successfully achieve final approval, you’ll want to avoid these five common mistakes.
At Homewise, we’ve made the pre-approval process simple, easy and free for every borrower. Working with over 30 banks and lenders, we not only find you the best mortgage, but we also guide you in taking the right steps to get final approval. If you’re looking to get a mortgage pre-approval online, you can apply with our five-minute application and one of our dedicated Mortgage Advisors will reach out, provide expert mortgage advice and personally assist you every step of the way.
Want to learn more about mortgage pre-approval? Check out this video from our Mortgage Academy series: