POIRIER BLOG

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October 1, 2018

Understanding the Mortgage Pre-Approval Process

Getting a mortgage can be a stressful process. In fact, it is one of the most important financial decisions that a person can make, so a little stress is healthy. That stress doesn’t need to be toxic though, and one way to avoid mortgage problems is to understand the process and be prepared. The first step is getting a mortgage pre-approval.

The process of getting pre-approved for your mortgage is actually relatively simple, but it does require some effort on your part.

We will cover some of the things to do and look out for when seeking mortgage pre-approval. Take note, and get going on the exciting process of buying a home!

Understanding Mortgage Pre-Approval

A pre-approval is a necessary process that gives you a clear idea of where to go next in the home-buying process. You’ll find out how much money you can spend on a home, an estimate of your mortgage payments, and the rate of your mortgage.

Another thing to note is that the rate you are pre-approved at by your lender will be locked for up to 60-120 days, depending on the lender. This means that if interest rates change while you’re still browsing the market, you will still be able to retain your original rates.

The first preliminary item that you’ll want to check is your credit report and score with your preferred lender (remembering that a credit check does marginally bring down your credit score). Doing this will give you an idea of what kind of financial help you could get from a lender, and it will give you time to address any errors that you find in these reports.

People don’t usually check their credit report unless they have a reason to, so you may not have looked into your score in a while. This means there may have been errors in your report that have gone unchecked. Take a look at your credit before applying for a mortgage to avoid any complications later on.

Personal Information You Will Need

You will need a number of things to provide your lender when you actually sit down to get approved.

Start by collecting a report of your income. You’ll want to have a record of all of the income that you have received in the last year, and previous years if you have the information. Things like pay stubs, freelance payment archives, and any other recordable income are important for the lender to see how your finances are stacking up.

Another thing to gather is information on your personal assets. Your lender will want to see where and if your money is tied up, so having official documentation on other financial assets that you have is going to be essential to a lender.

You will also want to have two forms of identification, if possible. So a driver’s license or passport should do the trick. After this point, you will want to speak to the lender and see if they require any more information from you.

You’ll be asked to provide this information, so having it ready beforehand will show that you are serious, prepared, and a good potential client.

Relevant Terms

There are a few common terms that get thrown around in the pre-approval process. The most common confusion is between the terms “pre-approval” and “pre-qualification.”

Pre-qualification is a process wherein one meets with a qualified mortgage professional. They go over your assets, financial income, and your necessary spending. This is essentially a way to get a feel for the kind of mortgage you could afford and gives you a lot of insight on whether or not you are in a situation to take out a mortgage.

It is much more informal than pre-approval but gives you the information on your financial situation in order for you to have a better idea of what you can afford. After being pre-qualified, you can start to honestly look into potential homes.

Pre-Approval is a meeting with the lender which is the next step in your home financing journey. At this point, the lender has looked at your current financial situation, spending habits, income stability, and past credit. They will have also examined this information in order to see what kind of loans you qualify for and what they are willing to loan.

A few things to note about the mortgage process are some more financial reports. You will need two years of tax returns, Notice of Assessments from your Income Tax return, records of your income for the last month, and two months of bank statements. You will also need to provide the authorization to order your credit report.

The final term you’ll need to know is “mortgage commitment.” If you are approved by a lender and you know the property you will be buying, you will engage in a mortgage commitment. Your loan information will be submitted and approved, and you will engage in a commitment to yourself and your lender. It is also important to note, that just because you’ve been pre-approved it doesn’t guarantee your mortgage will be approved- there are certain conditions that must be met depending on the home that you’ll be making an offer on.

After you’ve found your agent, you’ve been pre-approved, you’ve found the perfect home and then you’ve submitted an offer that was accepted, now you can complete the loan!

Stress Tests

A new stipulation has come into place for Canadians purchasing homes. If you’re in the process of buying a home, you may be subject to completing a stress test. This is something that checks your ability to stay financially secure if interest rates jumped way over your current rate.

This is in place because there are new rules governing lenders. Canada’s large financial institutions are now required to screen borrowers with a qualifying rate at around 5.14%. This essentially means that you might qualify for less money than you would have otherwise.

Things to Consider

A mortgage is a huge responsibility and can take many years to pay off. That is great because it shows reliability, improves credit and allows you to live in a house of your liking while also building equity.

That being said, it would be unwise to jump into a mortgage without getting an outside opinion. There are a lot of businesses (like us!) who would be happy to look over your information and give you advice.

You may have an excellent understanding of mortgages and how they work. However, be sure to consult a professional if you have any questions about the process or are unsure in any way.

When speaking with a lender or mortgage professional, be sure to assess the specific payments that you will be making. You will need to factor in your interest rate and monthly payment on the principal investment.

It is recommended that you make a yearly spreadsheet detailing your monthly payments on the loan. The interest rate will stay the same if you chose a fixed-rate mortgage, but the amount that you pay on monthly interest will slowly decrease as you pay more of your mortgage.

Stay Proactive

Learn how to calculate monthly interest or find an interest calculator online and chart out your payments for the following year. This will help you to ground your finances and have a handle on your mortgage.

If you have any further questions about mortgage pre-approval or mortgages in general, be sure to contact us and we can help point you in the right direction!

As a Realtor, I believe that helping my clients through every aspect of the home buying and selling process is crucial to their success.

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Tyler Poirier

Managing Broker

Tyler grew up around real estate, as his grandfather, father Darryl, and uncle were all in the business.

After Tyler completed his commerce degree in 2009, Darryl suggested he take his real estate licensing courses… And the rest, as they say, is history. To this day, nothing gives him more satisfaction than seeing buyers take the keys and open the door to their new home.

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