Most young Canadian families are wondering, what is a mortgage and what is a mortgage pre approval? Obtaining pre approval is an important (but not necessary) step in the home buying process. Calculating your estimate gives you a clearer picture of your purchasing power. The most important argument in favor of this procedure is the understanding of what loan size the bank will be ready to provide you with.
What Is A Mortgage Pre Approval
This procedure is a kind of verification of the client’s solvency. The banks in Canada pre-evaluate you as a potential borrower while determining the amount for further mortgage lending. At the same time, the security service checks the credit history of the potential borrower and their current income. Ultimately, the client learns the following information:
- what is the maximum loan amount they can count on;
- the size and regularity of upcoming payments to pay off the debt;
- the size of the interest rate.
In addition, you must understand that there is a significant difference between pre-qualification and pre-approval. Understanding it can greatly help you when choosing a bank and filing a mortgage loan application.
Please note: mortgage pre-approval is not a guarantee that you will be given a loan. This procedure is only a reflection of your options as a mortgage borrower.
| Pre-qualification | Pre-approval |
| allows you to get information about the amount of money approved by the bank;a special calculator is used on the website of a financial organization;the pre-qualification process in Canada takes a few minutes. | the lender carefully checks the information and solvency of the client before mortgage pre-approval;after approval, the client receives a loan with a set interest rate;the procedure may take quite a while. |
During the mortgage pre-approval process, lenders check the financial well-being of the borrower. This information is checked more thoroughly one more time just before the loan is approved. The size of the approved mortgage is influenced by the borrower’s income and the real estate they have.
Learn More About Pre Approval
It would seem that it can be difficult to independently calculate the size of future payments. On the banks’ websites, there are special mortgage calculators with which any user can make preliminary calculations. Nevertheless, mortgage approval is one more step forward and a kind of evidence of the bank that it will be ready to provide you with the specified amount of money. To complete the application, you will need the following information:
- data on the amount and method of income;
- information about seniority and work time at the current place;
- availability of additional ways of income;
- the presence of movable and immovable property;
- availability of debt obligations to banks;
- the ability to make advance payment and its size;
- for the owners of their business, you must provide an extract from the tax office.
Before looking for an answer to the question of how to get a mortgage pre-approval, you must understand the following important thing. As a rule, the owners of the real estate put up for sale are more willing to communicate with the buyers who have the pre-approval of the bank.
Please note: after securing the approval of the lender and when you start looking to take property in Canada, remember that this approval is valid for a limited period, and usually does not exceed 3 months. If during this time, you did not have time to decide on the option, the procedure will have to start over.
Probably, the most important thing is that preliminary approval significantly speeds up the process of obtaining a mortgage loan, as soon as you have decided on the housing you are buying. It’s no secret that this procedure can take up to a couple of months. During this time, the seller may change their mind. If you have dealt with the lender in advance, this will significantly shorten the procedure for completing the transaction.
What Can Influence the Bank’s Final Decision?
First, decide which type of Canadian mortgage is right for you – open or closed. A closed type of mortgage implies a contract with a bank for a specified period. In the case of an open type, you can pay off the debt at any convenient time. One of the most common types of open-ended mortgages is the Home Equity Line of Credit.
There are several reasons for the bank’s refusal of a potential borrower (even if it was previously approved by the bank). This happens most often in the following situations:
- poor credit history;
- errors or inaccuracies in the information provided to the bank;
- revealing non-compliance with the requirements set by the bank for potential borrowers;
- non-provision of additional requested documents by the client.
How long does mortgage approval last? The more reliable the data provided to the bank, the less time it will take to consider the application. Besides, a potential borrower must meet the minimum requirements of the bank.
This is important: the minimum down payment on a mortgage in Canada in 2021 is 5% of the cost of housing for real estate worth up to CAD 500,000. From CAD 500,000 to CAD 999,999, the numbers are as follows: 5% on the first CAD 500,000 of the cost and 10% on the balance. The purchase of real estate worth more than CAD 1,000,000 requires a minimum of 20%.