Getting preapproved for a mortgage

From: Financial Consumer Agency of Canada

What is a mortgage preapproval

When you’re shopping for a mortgage, you can compare options offered by different lenders.

Mortgage lenders have a process which may allow you to:

  • know the maximum amount of a mortgage you could qualify for
  • estimate your mortgage payments
  • lock in an interest rate for 60 to 130 days, depending on the lender

The mortgage preapproval process may be divided in various steps. It may also be called mortgage prequalification or mortgage preauthorization. Different lenders have different definitions and criteria for each step they offer.

During this process, the lender looks at your finances to find out the maximum amount they may lend you and at what interest rate. They ask for your personal information, various documents and they likely run a credit check.

This process does not guarantee your approval for a mortgage.

Find out if you qualify for a mortgage.

Where to get a mortgage preapproval

You can get a mortgage preapproval from mortgage lenders and mortgage brokers. 

Mortgage lenders

Mortgage lenders lend money directly to you.

Mortgages are available from several types of lenders, such as:

  • banks
  • caisses populaires
  • credit unions
  • mortgage companies
  • insurance companies
  • trust companies
  • loan companies

Different lenders may have different interest rates and conditions for similar products. Talk to several lenders to make sure you’re getting the best mortgage product for your needs.

It’s important to be comfortable with the lender and the mortgage options they offer you, right from the start. If you switch lenders after signing your mortgage contract, you may have to pay a prepayment penalty. Make sure you understand the terms and condition of your mortgage contract.

Learn more about the costs of breaking your mortgage contract.

Mortgage brokers

Mortgage brokers don’t lend money directly to you. They arrange transactions by finding a lender for you.

Some lenders only offer their products directly to borrowers, while some mortgage products are only available through brokers. Since brokers have access to many lenders, they may offer a wider range of mortgage products to choose from.

Mortgage brokers don’t all have access to the same lenders. This means the mortgages available vary from broker to broker. When you’re dealing with a mortgage broker, ask which lenders they work with.

Mortgage brokers generally don’t charge fees for their services. Instead, they usually receive a commission from the lender when they arrange a transaction.

Get a list of mortgage brokers in your area from Mortgage Professionals Canada.

The provinces and territories regulate mortgage brokers. You can contact them to confirm that a broker is licensed or to make a complaint.

Find your provincial or territorial regulator.

What to provide to your lender or mortgage broker

Before preapproving you, a lender or mortgage broker will look at:

  • your assets (what you own)
  • your income
  • your level of debt

You’ll need to provide the following:

  • identification
  • proof of employment
  • proof you can pay for the down payment and closing costs
  • information about your other assets, such as a car, cottage or boat
  • information about your debts or financial obligations

For proof of employment, you may have to provide:

  • a proof of your current salary or hourly pay rate (for example, a recent pay stub
  • your position and length of time with the employer
  • notices of assessment from the Canada Revenue Agency for the past 2 years, if you’re self-employed

Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.

Your debts or financial obligations may include your monthly payments for:

  • credit card balances 
  • child or spousal support
  • car loans
  • lines of credit
  • student loans
  • any other debts

What to consider during the pre-approval process

The preapproval amount is the maximum you may get for a mortgage. It doesn’t guarantee that you’ll get a mortgage for that amount.

The approved mortgage amount will depend on the value of the property and the amount of your down payment. You can also look at properties in a lower price range so that you don’t stretch your budget to its limit.

Remember that you also need money for:

  • closing costs
  • moving costs
  • ongoing maintenance costs

Find out more about the costs of buying a home.

What to do if a lender refuses your mortgage application

A lender could refuse you for a mortgage even if you’ve been preapproved.

Before a lender approves your loan, they’ll verify that the property you want meets certain standards. These standards will vary from lender to lender.

Each lender sets their own lending guidelines and policies. A lender may refuse to grant you a mortgage if you have a poor credit history. There may be other reasons. If you don’t get a mortgage, ask your lender about other options available to you.

Other options may include:

  • approving you for a lower mortgage amount
  • charging you a higher interest rate on the mortgage
  • requiring that you provide a larger down payment
  • requiring that someone co-sign with you on the mortgage

Questions to ask your lender or broker when getting preapproved

When getting preapproved, ask your broker or lender the following:

  • how long they guarantee the preapproved rate
  • if you will automatically get the lowest rate if interest rates go down while you’re preapproved
  • if the pre-approval can be extended

Ask your lender or broker about anything you don’t understand.

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