Mortgage Pre-Approval Guide 2021

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If you're looking to get a mortgage and buy a home anytime soon, you should look into getting a mortgage pre-approval. With a mortgage pre-approval, you can lock-in an interest rate for up to 120 days and have a credible estimate of your mortgage limit that you can show to agents and home sellers as proof that you are a serious buyer. The procedure is similar to applying for a mortgage, and while it can take some time, it can save you the hassle of having to apply for a mortgage when you're busy trying to close on your new home.

Mortgage Pre-Approval Basics

What is a mortgage pre-approval?

A mortgage pre-approval is a written contract with a mortgage lender that lets you lock in a certain term and interest rate and gives you an estimate of your mortgage limit. While it does not guarantee that you will be able to borrow the entire mortgage amount, it is usually a reasonable estimate and can help guide you in your home buying process. Some home sellers also request a mortgage pre-approval to make sure that buyers can afford their homes and won’t have to drop-out later due to financing problems.

A mortgage pre-approval does not last forever, however. You will usually have 60 to 120 days to close on a home purchase and sign a mortgage agreement at the locked-in interest rate. If you take longer than the agreed amount of time, you may get a different interest rate.

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Mortgage pre-qualification vs. pre-approval

A mortgage pre-qualification is a quick and simple way to get a rough estimate of your potential mortgage affordability based on your income, but a mortgage pre-approval has much more value as it’s backed by a written contract and is based on a more thorough analysis of your financial situation. You can get a mortgage pre-qualification over the phone or online with only a few details about your financial situation, which makes it a convenient option when you’re still early in the home buying process. However, if your financial situation is complex or you need a more accurate estimate, a mortgage pre-approval can give you a much higher level of assurance with a written contract and more in-depth analysis of your personal financial situation by your lender.

When putting an offer for a home, only a mortgage pre-approval will show the seller that you’re a serious buyer and have a very high chance of getting a mortgage.

Benefits of a mortgage pre-approval

Although a mortgage pre-approval is optional, it has many benefits for home buyers including:

  • Know your mortgage affordability. You will know how much you can spend and reduce the risk of making an offer for a home you cannot afford.
  • Mortgage financial planning. You can estimate your monthly mortgage payment and plan your finances ahead of time.
  • Locked-in interest rate. Depending on the lender, you may be able to lock in an interest rate for 60 to 120 days.
  • Show that you are a serious buyer. You can show sellers and real estate service providers that you are a serious buyer. This can increase your negotiating power and make your offer more attractive than an offer with conditional financing from a buyer who is not sure if they can get the money to buy the property.
  • Free and there are no obligations. There is usually no cost and it is your choice whether or not to use the mortgage pre-approval.

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How can a mortgage pre-approval affect conditional offers?

It is common for buyers to put down a conditional offer for a home where certain conditions will have to be met before the actual agreement is finalized; if one of the conditions is not met, the agreement will fall through and any deposit is returned to the buyer. The most common conditions include a clean home inspection, sale of the buyer’s current home, and financing. A buyer without a financing condition can stand out against other offers, but if the buyer ends up not being able to finance the purchase, the seller will keep your deposit and can sue you for damages associated with the termination of the offer. You may have to pay for any differences in price if the seller has to sell for a lower amount than your initial offer! Having a mortgage pre-approval can give you the confidence to waive the financing condition, but remember that mortgage pre-approvals are not guaranteed and you should make sure not to exceed your maximum limit.

How to Get a Mortgage Pre-Approval

You can get a mortgage pre-approval from a mortgage broker or directly from most lenders. You will likely have to provide detailed information about your financial situation and verify your income. Documents needed could include bank statements, a verification of employment, your credit report, and your previous tax assessment. Think of it like applying for a mortgage - in order for your lender to give you an accurate estimate, they will need to know whether you can handle the expenses of a mortgage.

What do I need to do to get mortgage pre-approval?

You will need to have a valid proof of income, assets, employment, and other documents the lender may require. This can include bank statements and your latest tax assessment. Your credit score also plays a significant role in determining your eligibility. If you do not have a good credit score, lenders can refuse to approve your mortgage—the required credit score for a mortgage approval ranges between 300 to 900, but the minimum credit score required by most major banks in Canada is 600 to 700.

How is my credit score determined?

Your credit score is based on many factors that play into how risky a borrower you could potentially be. If you have a history of paying your bills and debts on time, your credit score will slowly move up. If you miss a bill or payment, your credit score can drop significantly. Another factor that can temporarily affect your credit score is a “hard credit check”, which happens when you apply for a loan or line of credit. Lenders are wary of borrowers that suddenly try to borrow money from many different lenders. While the effect will only be temporary, you should try not to apply for a loan prior to getting your mortgage or pre-approval. This can include an auto loan, personal loan, or line of credit such as a credit card.

Some people may not have a credit score or have a low credit score despite paying all their bills on time because they haven’t borrowed much in the past. This means that lenders have less information to base their decisions on, which makes you a more risky borrower.

As a Canadian, you are entitled to one free annual credit report from each of the major credit reporters in Canada: TransUnion and Equifax. Some financial institutions also offer free credit scores and credit monitoring services as part of their product packages.

When should I get mortgage pre-approval?

It is a good idea to get pre-approved before house-hunting. Knowing how much you are eligible for can help you plan for financing, set a budget and narrow down your search and expectations for a home since you know how much you can afford.

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Canadian Bank Mortgage Pre-Approvals

RBC Royal Bank Mortgage Pre-Approval

RBC offers both mortgage pre-qualification and pre-approval. The former is quick and convenient: done through the phone or online, you are required to provide financial information such as income and debt. The lender will then give an estimate of how much they are willing to lend with no obligation.

With a mortgage pre-approval, the lender will actually verify your credit and information; although the actual rate or mortgage may differ if you do decide to accept, the lender is obligated to lend to you if you do get pre-approved and meet the conditions. You can apply for an RBC mortgage pre-approval by filling out their online application form. An RBC mortgage specialist will then take over the rest of the process and let you know what documentation you will need to provide. Typically, if pre-approved you will be able to lock-in a mortgage rate for 120 days.

Scotiabank Mortgage Pre-Approval

Scotiabank offers their mortgage pre-approval service online through Scotiabank eHome, a digital platform that takes care of all of your needs and applications regarding mortgage. You are prompted to complete the pre-approval application in 5 steps in which it asks for information on records such as employment history and assets. Once you submit your application, if you are eligible for the pre-approval you will be able to download your pre-approval letter online that details your exclusive rate guarantee.

Scotiabank’s platform is extremely simple and easy to use: you are able to save your application and complete it whenever you want, contact a mortgage specialist if help is needed, and your status is provided in real-time.

TD Bank Mortgage Pre-Approval

You can apply for a TD mortgage pre-approval online, through phone, or in-person. You will be asked to provide documentation such as your address, employment information, and value of assets. If applying online, you will receive a mortgage pre-approval certificate if your application is approved after review. You can also set up an in-branch meeting and your provider will let you know what documents to bring.

TD has a 120-day rate hold which allows you to hold your offered interest rate for the next 120 days if all conditions are met, even if their marketed rate on the term increases. If the interest rate decreases and is lower than what they provided in the pre-approval, you can ask to have your given rate adjusted to match. When you submit your application online, there is no impact on your credit score. If you are new to Canada and became or have applied to be a permanent resident with less than 5 years of residency in Canada, TD will allow you to apply for a mortgage and a pre-approval even if you have no credit history.

CIBC Mortgage Pre-Approval

You are required to book an appointment with CIBC to be able to receive a mortgage pre-approval certificate. You will be asked to provide details of the property, employment and income verification, confirmation of down-payment, and personal financial information. If you are eligible, you will receive a mortgage pre-approval certificate that outlines your terms.

You will be able to lock in the interest rate offered in the certificate to up to 120 days from the certificate date if you meet the stated conditions. However, keep in mind that changes to your credit history such as paying off a major loan could impact the mortgage amount you can afford.

BMO Bank of Montreal Mortgage Pre-Approval

You can apply for a BMO mortgage pre-approval online, in-person at a local branch, or through a mobile mortgage specialist. You will be asked to provide information on your liabilities, assets, valid ID, and employment. Your application will be reviewed and results are typically released to you in one to two days.

BMO locks your offered interest-rate and term for up to 130 days given that you meet the provided conditions. You are also allowed to get pre-approval from multiple lenders although each pre-approval may affect your credit score. If you are new to Canada, you may be able to apply depending on where you have lived, financial information, and how long you have stayed but you must visit your local branch or contact a mortgage specialist to confirm.

Mortgage Pre-Approval Frequently Asked Questions

Does the interest rate depend on the length of mortgage pre-approval?

Yes. The length of time your offered interest rate is locked-in for after pre-approval plays a role in determining your interest rate. The longer the time, the more risky it is for the lender as they still have to offer you the lower rate even if their other rates increase. However, this is not the main factor that determines your interest rate: other important factors include your credit score, whether your documents are complete, and your financial situation. In general, if a lender deems you to be a risky borrower who may lack the ability to pay them back, your interest rate will be higher.

What should I do after getting my mortgage pre-approved?

If you get your mortgage pre-approved, congratulations! Look over your conditions carefully and take note of how long your interest rate is locked in so that if you choose to exercise your offer, you will meet all the requirements to do so. Once you find your dream home, do not forget that you will still need to apply for the actual mortgage and get ready to provide needed documents and applications. Your credit scores and documents will still need to be checked to see if you meet the pre-approval conditions—if there have been major changes, your rates and terms may change.

Should I negotiate the final mortgage rate?

If a lender agrees to loan you a mortgage, you are allowed to negotiate the terms and conditions which include the interest rate along with the amount and the term. You are more likely to be able to negotiate the rate if you have an excellent application that consists of a great credit score, a bigger down-payment, lower monthly debt, or other things that may appeal to the lender. Many mortgage brokers are willing to buy-down the rate that they get from their lenders, giving you a discount on your interest rate. We suggest that you take the time to shop for rates offered by different lenders and decide what is best for you. Remember, the interest rate isn't everything; the other terms and conditions in a mortgage can make a big difference as well.

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