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How to Get Pre-Approved for a Mortgage

How to Get Pre-Approved for a Mortgage
Mortgage pre-approval

Getting pre-approved for a mortgage will keep your house hunting on a smooth and realistic track. It will save you time, possibly money and can increase the chance a seller will accept your offer when you find a home you’d like to buy.

What is a Mortgage Pre-Approval?

A mortgage pre-approval is a lender’s estimate of what you are capable of borrowing given your financial situation, along with a conditional agreement to fund the mortgage when the time comes. It is a step above pre-qualification which is simply an estimate of what you can afford, but not yet a formal mortgage application. You will still need to go through the mortgage application process when you decide to buy a home.

A mortgage pre-approval provides details such as the mortgage term, interest rate and principal amount. The agreement is valid for a limited amount of time — usually 60, 90 or 120 days, depending on the lender. However, if, during that time, interest rates go up, the lender will most likely still honour the agreed upon rate in the formal mortgage application, unless other conditions have changed. 

Why get a Mortgage Pre-Approval?

Getting a mortgage pre-approval can benefit you in a number of ways — and it’s free, so there really isn’t a downside except for the time involved.

1. A mortgage pre-approval helps focus your house-hunting process. A mortgage pre-approval is a clear indication of what you can afford — right down to the monthly mortgage payments. With this in mind, you won’t waste your time on houses that don’t fit your budget. Your real estate agent might also provide better service if you’ve got a mortgage pre-approval, since it shows that you are serious about buying a home, and you won’t be wasting his or her time.

When it comes time to make an offer on a home, you’ll be able to enter into this sometimes nerve-wracking process with confidence, since it is based on a realistic assessment of your finances.

2. A mortgage pre-approval will generally help you beat out the competition when you make an offer. The BC housing market calmed somewhat in 2023, in comparison to the few years before, and 2024 is expected to be similar to 2023. Competition for housing is still high however, and having a mortgage pre-approval might be just the thing that helps the seller select your offer over others. The seller will know that your offer will not fall through due to financing.

3. When interest rates are rising, you’ll be able to lock in a lower rate. Note that if interest rates drop, your lender will typically extend the lower rate to you when you make the formal mortgage application.

How to Get a Mortgage Pre-Approval

You can go directly to your bank or credit union to get a mortgage pre-approval, or you can work with a mortgage broker to help you find the best deal. Mortgage brokers work as an intermediary between you and the lender. They interact with a large number of lenders and so can compare mortgage offers to find the best agreement for your unique situation.

Pre-approvals can be done in-person or online, and usually it takes 24 to 48 hours to get an answer.

What Lenders Consider When Making Their Assessment

Regardless of who you work with, they will make an assessment of your finances and you will need to provide them with your financial information. Specifically, they will look at:

1. Your Credit Score. Higher than 680 is ideal, but even with a less-than-ideal credit score, pre-approval might still be possible. Lenders look at your finances in a holistic aspect, you might be able to compensate for a lower credit score with something else — a higher down payment, for example. 

2. Your Down Payment. In Canada you are required to put between 5 and 20% down, depending on the cost of the house.

3. Your Debt Service Ratios. Lenders look at all your financial commitments compared to your income to determine if you’ll be able to meet monthly mortgage payments.

4. Your Supporting Documentation. What you’ll need to provide will depend on your mortgage broker or lender, but generally, they will need:

  • Identification — 2 pieces, including one Government-issued ID
  • Employment and Income Verification, such as Income stubs, a letter from your employer, or a notice of assessment and financial statements if you are self-employed
  • Length of Time With Employer
  • Proof of Assets, such as bank statements and investment statements or tangible assets such as a car
  • Information About Other Debts, such as credit cards or lines of credit, car loans, support payments and so on

What to Do If Your Mortgage Pre-Approval is Denied or is Too Little

If your pre-approval application is denied, you can work with a mortgage broker (if you didn’t the first time). A mortgage broker has access to more lenders and different sorts of arrangements than a traditional bank. You could also try to find a co-signer for your mortgage application.

If you are pre-approved for too little an amount, and you don’t want to lower your expectations, you may need to take the time to boost your financial status by saving for a larger down payment, and/or reducing your amount of debt.

Work With a Mortgage Broker

As your Victoria mortgage broker, Auxilium Mortgage can help you get a mortgage pre-approval that fits your situation, bringing your dream of home ownership that much closer. Give us a call, and we’ll talk about it. 

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