Mortgage pre-approval is a promissory quote from a lender stating how much money and at what interest you will be able to borrow from that lender.
How to Get Pre-Approved
Applying for a pre-approved mortgage is relatively quick and easy, and there is no fee.
You will have to provide information about your (and your co-applicant's) employment, income, assets and debt load.
The pre-approval certificate is issued in writing to guarantee your mortgage amount and interest rate for 60 to maximum 120 days.
Benefits of Pre-Approval
Credibility - An offer from a buyer whose ability to pay is proven will have a much better
Reality Check - It's a good idea to know your financial limitations before you start looking
for a house.
Interest Guarantee - You are protected against interest hikes in a pre-approval term. If the cost
of borrowing falls during the term you are entitled to the lower rate.
Why to Apply Ahead of Time
Having your mortgage pre-approved doesn't bring you any money yet. Once you find the property you want to buy and negotiate its purchase you have to apply for a mortgage to get the funds.
Your pre-approved mortgage certificate will be honoured by the issuing lender, provided that your financial situation has not worsen by the time you
actually apply for the mortgage.
The lender will thoroughly check your financial credentials to make sure you still qualify. You will have to provide a letter of employment or pay stubs (or your latest tax assessment if you are self-employed) so your income can be verified.
You may also be asked to have the property appraised if there is any concern whether it isn't overpriced.
When you apply for a high ratio mortgage, there is one more application to proceed with - you have to obtain mortgage default insurance as well.
(see 'Mortgage Insurance' on the next page)
Why you should not apply online ?
Many lenders can take your application online, so you can apply for a mortgage without leaving your home.
However, this convenience comes with a price. Online applications are a very poor substitute for face-to-face contacts with loan officers.
Namely, in the virtual setting you can not negotiate interest rates, discuss your options or explain glitches in your credit history.