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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.
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
