While shopping for a home may be pleasant, serious homebuyers need to start the process in a mortgage broker’s office, not an open house.

Benefits of Obtaining a Mortgage Pre-Approval

Potential buyers benefit in several ways by consulting with a mortgage broker and obtaining a Mortgage Pre Approval.

First, they have an opportunity to discuss loan options and budgeting with the mortgage broker.

Second, the mortgage broker will check on their credit and alert the would-be buyers to possible complications with their credit. Many time people do not realize there is an issue but usually they can be dealt with quickly.

Third, the buyers learn the maximum they can have for a mortgage pre approval and therefore have an idea of their price point they should be looking at for homes. However, all buyers should be careful to estimate their own comfort level with a mortgage payment rather than immediately aiming for the top of their mortgage pre-approval.

Lastly, home sellers and realtors expect buyers to have a mortgage pre approval in place before making an offer.

Pre-Requisites for Mortgage Pre-Approval

A pre qualified mortgage can be useful as an estimate of how much you can afford to spend on your home, but a mortgage pre-approval is much more valuable because this means the mortgage broker has actually checked your credit and verified your documentation to approve a specific mortgage amount (usually for a particular time period such as 120 days). Final mortgage approval occurs when you have a purchase contract in place and the mortgage is applied to a particular property plus the mortgage has been sent to CMHC for their approval as well.

“No verification” or “no documentation” mortgage preapprovals are a thing of the past, so all borrowers need to be prepared with the past two years employment history , recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns.

For your pre mortgage pre approval you will need to present 3 months bank statements and investment account statements to prove that you have funds for the down payment and closing costs. Closing cost vary across Canada due to some provinces having land transfer taxes, these add to the cost and CMHC uses an average of 1.5% as the norm across Canada. RRSP are another source of down payment but must have been in your account at least 90 days and you must not have owned a home in the last 5 years to qualify to use them without paying income tax