Are You Truly Pre-Approved?
The Importance of Pre-Approvals
The pre-approval process is an important step in the mortgage application process. It provides an estimate of how much you may be able to borrow based on your financial situation. This can guide your home search and help you focus on properties within your budget.
Securing Your Mortgage Rate
During the pre-approval process, you can accomplish two things. First is to know that you can actually buy a property, and secondly you can secure your mortgage rate. This rate is typically locked in for a certain period, usually up to 120 days, protecting you from potential rate increases while you search for a home. It’s important to understand that the rate you secure may not be the final rate you receive, as the final rate depends on the specific property you purchase, and any changes in your financial situation.
Submitting Your Documentation
To get pre-approved, you’ll need to submit an application, either in person or online through secure application portals, along with your supporting documents. This documentation allows the lender to verify your financial situation and assess your ability to repay the mortgage.
Requirements of Pre-approval
The Following documents are required to get pre-approved:
Identification Documents
Acceptable proof of IDs are drivers’ licenses, passports, residence cards, birth certificates, etc. Please note that in Ontario, an OHIP card is not a valid form of ID. Also, the IDs must have a valid date, meaning that they must not be expired.
Income and Tax Documents
Confirmation issued by an employer such as work letter, pay stubs from the last 30 days, T4, as well as income tax documents: Notices of Assessment, tax returns, usually for the last 2 years. If the income is generated from investment or a business activities, additional paperwork may be required.
Down Payment Confirmation
The lender needs to know that you have the funds necessary for a down payment and closing costs. They will confirm that by looking at the following: bank statements (usually the last 3 months, or longer, showing accumulation of the money), any investment statements, RRSP statements, gift letter (if applicable). If part of the down payment is coming from your family, make sure that it is not a loan. Gifts from family are a legitimate source for a down payment. Talk to your broker to structure this step properly. If any large deposits show in your bank statements, there might be a need to provide more information. It is advisable not to make large cash deposits or move money between accounts, as that can create concerns with the lenders.
Other Documents
Based on your individual situation, additional documentation may be required. You broker can assist you with the complete list.
Credit Bureau Report
This is usually not provided by the borrower. The mortgage broker and/or lender you work with has established memberships with credit bureau agencies, and they will pull your credit reports. This eliminates the need for a borrower to provide their own copies, and at the same time reduces the risk of dealing with outdated reports or even fraudulent information.
Please note that this pre-approval process only applies to purchases, and if you have an accepted Agreement of Purchase and Sale, or more commonly known as an offer, you will skip the pre-approval process and go straight to the approval. The difference is that the pre-approval is based on the borrowers qualifications only, where in the approval the lender combines the borrowers information with the information of the property to issue an approval.
Understanding the Limitations of Pre-Approval
While pre-approval is an important step, it’s not a guarantee that you’ll be approved for a mortgage. The lender will still need to assess the specific property you choose, and any changes in your financial situation or mortgage rules could affect your approval. Therefore, it’s important to keep your finances stable during the home search process. Also, avoid acquiring more debt or changing jobs.
Important Consideration
There is a misconception that once pre-approved you are ready to go and make an offer on a home. Technically that could be true, but at the same time, it could be just a simple miscommunication or a gross negligence on the part of the lender or a broker, depending on how your pre-approval was handled. Let’s dig deeper into this as it is a hot topic of discussion.
There is a big push about getting pre-approved. Buyers want it, real estate agents want it, home sellers want it. Everybody wants to know that the person buying is pre-approved, and that they can make an offer, and knowing that once that offer has been accepted that the buyer can complete that purchase.
So where is the concern? Well, there are lot of good lenders out there. Mortgage brokers use them every day knowing which brokers are good for different type of situations. Large number of these lenders will take an application and issue a certificate with an amount that the buyer can use to buy a home, and the mortgage rate guaranteed for the period of pre-approval. The issue is that some of these lenders don’t fully pre-approve the applications. It doesn’t mean that they will not approve any application, what their focus in the underwriting is on the FIRM deals. They are upfront that they will lock the mortgage rate, so the borrower is protected from rate increases, but they don’t fully analyze the applications or verify the information. In essence, this is simply a rate lock, not a fully underwritten pre-approval. You are guaranteed a certain rate, but there is always the doubt that you may not complete the purchase. This is OK to do when somebody has a rock solid credit score of 800, guaranteed income and comfortable down payment, but for lot of people that is not the case.
We all have seen those ads online where you get pre-approved almost instantly. How convenient is that, really? I would revise this statement to “How accurate is that?”
The solution to this is to have your broker submit your application to a lender that takes the time to look into your details, to review your documents and to ask you for clarifications, so once they issue that pre-approval certificate you know that you have been truly pre-approved. That way you can make an offer with confidence.
Conclusion
Pre-approvals are important, but you need to know when you are truly pre-approved or just pre-qualified with a rate guarantee. At TheBroker.ca Ltd, we understand the importance of pre-approvals. That’s why we access to lenders that will fully analyze you application and issue a valid pre-approval. Don’t jeopardize your home purchase by making a mistake with where you apply for your mortgage. Talk to us. We can offer you helpful advice on getting a mortgage, the current mortgage rates, and guide you through the process that will help you make informed decisions that align with your financial goals.
About Us
At TheBroker.ca Ltd, we are constantly looking for ways to provide helpful advice related to mortgages, current mortgage rates, and more. If you have any questions or need further assistance, we offer a complimentary no-obligation consultation. Feel free to reach out to us at (519) 252-9665 during our regular business hours. Alternatively, you can fill out our contact form, and your message will be promptly emailed to us. We value your time and inquiries, and we make it our priority to respond to all messages within one business day. When reaching out, please provide us with your contact details, a brief overview of your mortgage needs, and the most convenient times for you to have a consultation. We look forward to assisting you with your mortgage.
This article was brought to you by TheBroker.ca Ltd., a mortgage brokerage that is licensed with the Financial Services Regulatory Agency of Ontario (FSRA), which regulates businesses in the financial sector. The Principal Broker Sash Trajkovski has over 20 years of real estate and mortgage experience in the Ontario marketplace. You can verify our licenses by visiting the following links from FSRA’s website: our corporate license and Principal Broker license. Our mortgages services are available to all residents of Ontario. If you’re in Ontario and looking for more personalized advice and information, consider booking your Complimentary Consultation today, and let us help you understand the details that will guide you on your path to a suitable mortgage solution.
Disclaimer: Please note that this information is current as of the date of publication and is intended to be general in nature. It is not intended to provide legal, tax, financial, or other professional advice and should not be relied upon as such. Always consult with a professional for advice tailored to your individual circumstances.
