5.2.3 Pre-approval

Before you start looking at real estate, talk to your financial institution about pre-approving a mortgage. Pre-approval means you talk to a mortgage lender before you need the mortgage to see how much you are qualified to borrow and at what rate. This has several advantages:

• It saves time when you make an offer.
• It locks in an interest rate for a certain time, usually three months. This means you can get the locked-in rate if interest rates have gone up, but you can still get a lower rate if rates have gone down.
• It lets you know how much your financial institution is willing to lend you. But remember: what's important is not how much you can borrow, but how much you can afford to repay.

When you talk to your lender about pre-approval, ask:

• How long is the pre-approved rate set for?
• Can the pre-approval be extended?
• What happens if interest rates go down while I am pre-approved?

Don't rely on a lender to determine what you can afford. Make your own calculations based on your income after taxes and your total expenses. Make sure you have some flexibility so that you can manage other home buying costs, interest rate hikes, maintenance and repair costs, etc.