Toronto: If you are looking for a mortgage in Canada, you will very frequently come across terms like pre-qualification, pre-approval, approval etc. Are they all related and should you know all about it? The answer is Yes, if you want to make a wise decision in deciding the mortgage amount according to your repayment potential. This article incorporates all the details that you must know about pre-approved mortgages in Canada.
Mortgage Pre-qualification, Pre-approval and Approval in Canada
A mortgage pre-qualification is what you need if you require a prompt response regarding the amount you might be approved for. All you need to enter into the majority of financial institutions’ web tools are your income, debts, and assets. You’ll be given a ballpark figure for how much you’d be authorised for based on that information. Pre-qualifications can be completed online or over the phone and only take a few minutes.
Here, your lender will verify your financial details and do a credit check on you. Once accepted, your lender commits to providing you with a mortgage for a predetermined amount of time at a predetermined interest rate.
Although a lender’s pledge of pre-approval for a mortgage is a promise, it is not a guarantee. The lender will conduct one last financial review when you’re prepared to close to see if your financial situation has altered since the pre-approval was issued. They might also conduct a home appraisal because the property worth of the house you bought might have an impact on your mortgage.
A lender must provide a loan estimate within three business days after receiving a completed mortgage application. The maximum loan amount, the pre-approved loan amount, the mortgage’s terms and features, the interest rate, the anticipated interest and payment amount, the anticipated closing fees, the anticipated property tax amount, and the homeowner’s insurance estimate are all described.
A loan underwriter will finally get the loan file and check to see if the borrower complies with the requirements of the particular loan programme in order to determine complete approval. The buyer and lender can then proceed with the loan closing if the buyer’s financial status hasn’t changed after pre-approval. When the buyer gets an appraisal for the house, the loan finally gets Approval.
Why is Mortgage Pre-approval Important?
Two of the simplest methods to improve the comfort of house ownership are figuring out how much you can afford to spend on a property and selecting the best financing option.
You might want to get a pre-approval so that you can make sure you are staying within a comfortable budget and spending your time looking at properties you can actually afford before falling in love with a potential new home.
The pre-approval meeting is the perfect opportunity to learn about the many mortgage solutions that are available to match your specific needs. Once the loan has been pre-approved, the lender will normally keep the interest rate at the time of approval for 120 days without incurring any obligations.
Your search for a property will go more quickly and with the assurance that you know how much you can spend on the home of your choosing if you have the income confirmation paperwork ready.
What are the requirements for Mortgage Pre-approval in Canada?
You must meet with a mortgage broker or a lender in order to get pre-approved for a mortgage.
- You must give them the data and paperwork required for mortgage pre approval Canada in order to find out how much you can afford and begin the home-buying process.
- Personal Information supported by government identification documents and details such as Age, occupation, marital status, children, etc.
- Information of your current financial situation/state of bank accounts that must include bank, branch, accounts and balances as well as information on remaining debts
- Complete information on existing debts, including but not limited to:
- Credit cards and line of credits
- Spousal or child support
- Car leases and payments
- Student loans
- Personal loans
- Proof of source of down payment
- Confirmation of Down Payment and the source of where the money came from. The lender may also require the last 90 days of the transactions within the account(s) that the down payment is from. If the down payment is a gift, a gift letter may be required.
- Consent to run a credit history search
- Determining your credit score is an essential part of the pre approval process, and the lender will ask you for permission to pull your credit history. You may be asked verbally, but it is more likely that you will sign an authorization form allowing them to pull your credit history.
- Complete information on your Current Property
- Recent mortgage statement
- Current homeowner insurance policy
- Most recent property tax bill/statement
- Legal description of property
- Property Value
- Proof of Employment – Income Confirmation
- If salaried or hourly employment (full time or regular part time)
- A letter from your employer on Company Letterhead which includes your name, length of service, salary or hourly pay rate and name and title of person signing the letter
- Proof of income (T4 slips, copies of at least your last two pay stubs, personal income tax returns, Notice of assessments for the last 2 years)
- Copy of a current Bank Account statement showing direct deposit of your income
- If self employed or on contract
- Provide your last two years Notice of Assessments (NOA) from the Canada Revenue Agency as well as additional documents like the Statement of Business Activities.
- If salaried or hourly employment (full time or regular part time)
- *Other sources of income
- If you have other sources of income such as part-time work, rental income, or a pension then the lender could ask for back-up documentation. Be prepared to prove your income and have the lender review your tax returns, copies of paystubs, or tenancy agreements.
Documents Mandatory for Mortgage Approval
Never assume that just because you have completed your mortgage pre-approval, you will automatically be approved for a mortgage for every property on which you submit an offer.
The lender will evaluate paperwork related to the property and make sure they are willing to offer you the money to buy it before finalizing your mortgage. The bank might not be willing to finance that acquisition if the property has significant problems with things like leaking. As a result, the mortgage application procedure requires proof of your identity, income, and the property you are buying.
You must be able to provide the following documents to your lender after reaching an agreement with a seller:
- Purchase and Sale Agreement(s) include schedules and waiver
- Additional costs related to the property such as heating costs
- MLS Listing with photos which will include property taxes, additional strata fees (if any), square footage, style of home, etc.
- Depreciation Report, Form B, recent strata minutes, and other strata documents if strata
- An appraisal by the bank may also be required, specifically if you are putting more than 20% down.
- Your lawyer’s, builder’s and realtor’s names, addresses, postal codes, telephones, fax numbers and email addresses, as well as the contact information of the seller, if applicable
Rejection of Mortgage Pre-Approval Application
A lender will decide whether to pre-approve, deny, or pre-approve with conditions after analyzing a mortgage application. For the borrower to comply with these terms, more documents or debt reduction may be needed. The lender must provide reasons for any denials and options to increase a borrower’s likelihood of receiving pre-approval.
Frequently Asked Questions (FAQs)
How to know the mortgage amount I can be eligible for?
Purchasing a home may be very thrilling and emotionally charged. Therefore, it’s crucial to try to predict in advance what monthly mortgage payment you’ll feel comfortable making after you’re settled.
Don’t forget about additional house ownership costs like utilities, property taxes, and perhaps condo fees.
Giving you a maximum mortgage pre-approval amount from a mortgage broker or bank is one thing (often there are different approval maximums, at different rates). However, after you move into your new house, being able to comfortably afford your mortgage payment should also be a top priority.
How to get pre-approved for a mortgage in Canada?
Since getting pre-approved is free, it makes sense to compare prices. Make sure your credit score is in good standing because most lenders will perform a hard credit check as part of the procedure to evaluate your finances. It will only appear as one hard check on your credit file if you receive several credit inquiries from different lenders over a short period of time, usually between 14 and 45 days, thus the impact on your credit score is minimal.
To learn how much you’ll be accepted for and what interest rates they’re providing, get in touch with mortgage lenders. Alternatively, you might enlist the help of a mortgage broker, who will perform comparison shopping on your behalf. There are no fees because lenders pay brokers.
What are the benefits of Mortgage Pre-approval?
Amongst many, the most important benefits of mortgage pre-approval are the following:
Identify your mortgage affordability
Ability to do mortgage financial planning beforehand
Lock-in you interest rate for 60-130 days
Represent yourself as a serious buyer to lenders
No financial or legal obligations
What should I do for a mortgage pre-approval in Canada?
You must possess legitimate proof of your income, assets, employment, and any further paperwork the lender may need. This can include your most recent tax assessment and bank statements. Your eligibility is heavily influenced by your credit score as well. Lenders may not approve your mortgage application if you have a low credit score; the minimum credit score needed by the majority of Canada’s major banks is between 600 and 700, although the required credit score ranges from 300 to 900 for mortgage approval.
Can a bank deny a mortgage after pre-approval?
Even if you are pre-qualified for a mortgage, it doesn’t mean that your application will be approved. This could be the result of a change in your financial circumstances, including your credit, income, or employment history. Even the property itself could have a problem, such as a home appraisal that is below your purchase price. Additionally, lenders will want proof that you have homeowners insurance. If you’ve had your mortgage application rejected, you might want to consider increasing your down payment, getting a co-signer, or even looking into different mortgage lenders who have less onerous requirements.
For more Canadian Mortgage news, please visit our Mortgage section.