What Exactly is Mortgage Pre-Approval?
Before you start scrolling through listings and booking showings, there’s one crucial step you shouldn’t skip: getting pre-approved for a mortgage. This isn’t just a formality or a nice-to-have. In Oakville’s competitive real estate market, a solid pre-approval can be the difference between getting the home you want and losing out to another buyer.
A mortgage pre-approval is a written commitment from a lender stating that they’re willing to lend you a specific amount of money at a specific interest rate, subject to certain conditions. It’s based on a thorough review of your financial situation, including your income, debts, assets, and credit history.
Pre-approval is different from pre-qualification, which is a much looser estimate based on self-reported information. Pre-approval involves real underwriting work and gives you a genuine commitment from a lender.
The Key Benefits of Getting Pre-Approved
First, you’ll know exactly what you can afford. Pre-approval gives you a clear maximum purchase price, so you can focus your search on homes you can actually buy.
Second, you’ll lock in an interest rate. Most pre-approvals come with a rate hold, typically lasting 90 to 120 days. During this period, if interest rates go up, you’re protected.
Third, sellers take you more seriously. A pre-approval letter shows that a lender has already reviewed your finances and is prepared to fund your mortgage.
Fourth, you’ll close faster. Since much of the underwriting work is done during pre-approval, the final mortgage approval goes much more smoothly.
Documents You’ll Need for Pre-Approval
Proof of Identity
You’ll need to provide government-issued photo identification. A valid driver’s licence or passport works perfectly.
Employment and Income Verification
For salaried employees, you’ll typically need:
- A letter of employment on company letterhead
- Your two most recent pay stubs showing year-to-date earnings
- Your T4 slips for the past two years
- Your Notice of Assessment from the CRA for the past two years
For self-employed individuals, the requirements are more extensive:
- Your T1 General tax returns for the past two years
- Your Notice of Assessment for the past two years
- Financial statements for your business if incorporated
- Articles of incorporation or business registration
Asset Documentation
- Bank statements for the past 90 days
- Investment account statements
- RRSP and FHSA statements if you plan to use these for your down payment
The Pre-Approval Process Step by Step
Step 1: Initial Consultation
We’ll start with a conversation about your situation. This typically takes about 30 minutes and can be done by phone, video call, or in person.
Step 2: Application and Document Collection
You’ll complete a mortgage application, either online or on paper, providing details about your employment, income, assets, and debts.
Step 3: Credit Check
We’ll pull your credit report to review your credit score and credit history. In Canada, a credit score of 680 or higher is generally considered good.
Step 4: Underwriting Review
Your application and documents are submitted to the lender’s underwriting team for review. This usually takes 24 to 48 hours.
Step 5: Pre-Approval Issued
Once approved, you’ll receive a pre-approval letter stating the maximum mortgage amount you qualify for and the interest rate.
Common Pre-Approval Questions
Does Pre-Approval Affect My Credit Score?
Yes, a pre-approval involves a “hard” credit inquiry, which can temporarily lower your credit score by a few points. However, this impact is minimal and short-lived.
How Long is My Pre-Approval Valid?
Most pre-approvals are valid for 90 to 120 days. If your pre-approval expires before you find a home, you can usually renew it.
Ready to Get Pre-Approved?
Getting pre-approved is easier than most people expect. Call us at 416-822-7357 or fill out our online application to start your pre-approval today. Most of our clients receive their pre-approval within 24 to 48 hours.