MORTGAGE PRE-QUALIFICATION, PRE-APPROVAL, APPROVAL
The difference between pre-qualification, pre-approval and approval:
PRE-QUALIFICATION: If you’re getting started and not looking at homes yet. Is an estimate of the amount of mortgage you may qualify for based on the accuracy of the information you provide. A pre-qualification is more for illustrative and information purposes only and is not intended to provide confirmation of pre-approval or approval.
PRE-APPROVAL: When you’re ready to start seeing homes. A more formal process where the lender checks your credit history and verifies your financial information. If you’re pre-approved, a lender is making an actual commitment (subject to conditions such as the property value or sale of your home) to loan you money (give you a mortgage). Pre-approval is not necessarily a guarantee that you will receive a specific rate or mortgage from that lender because circumstances may change from the time you get pre-approved until the time you’re ready to make a purchase.
APPROVAL: Once you’ve made an offer. Once you’ve have made an offer on a property your lender will review the value of the property and confirm whether they will give you a mortgage to purchase it. Although you may have been pre-approved the lender usually needs to make sure that it is smart to give you a mortgage for the house you want to buy (since the lender would need to sell the house for at least the mortgage amount if mortgage payments are not made). When you make you’re offer you may make it conditional upon financing which means you will only go through with the purchase if the lender confirms they will give you a mortgage for this particular home.
APPLY ONLINE FOR PRE-APPROVAL
One of my favorite mortgage brokers, Lisa Kanski at Castle Mortgage, has a handy online pre-approval form that you can fill out to get the process started. Once submitted Lisa will be in touch to get a few more details and process your pre-approval.
Contact Lisa at 204-981-2193 or firstname.lastname@example.org
What you’ll need:
Assets (bank account & investment balances)
Liabilities (debts & mortgages)
GET PRE-QUALIFIED ONLINE
Curious to know how much you could be approved for? A pre-qualification is a great way to get an idea of your possible purchase price without starting the full pre-approval process.
GETTING YOUR DOCUMENTS & INFORMATION READY FOR PRE-APPROVAL
BMO has a great list of documents and information you will likely need during the pre-approval process:
Verification of employment and income;
Most recent pay stubs, letter from employer to confirm salaried incomes
Last two years T1 General (plus Notice of Assessment for self-employed or variable income ( e.g. commission or overtime))
Based on the type of employment or income, additional supporting documentation may be required
The account numbers and locations of your bank accounts and investments
Assets information, may include:
Vehicles, boats, investments and interest income, retirement savings accounts, collections, jewelry, other real estate holdings
Liabilities information, may include:
Existing mortgages, credit card balances, car and student loans, lines of credit, co-signed or guaranteed loans, liens, child support
Information courtesy of Bank of Montreal. Click Here to visit the BMO website to learn more.
Mortgage calculators are great tools to explore how much monthly payments will be for certain mortgage amount, how much interest rates effect the payment amounts and how much interest you would pay over the life time of a mortgage.
If you don’t know details of your mortgage yet (ie. amortization and interest rate) I suggest picking a 25 year amortization and the TD Bank 5 year fixed rate listed here. For most standard residential mortgages you will need a minimum of 5% down-payment.
KARL’S MORTGAGE CALCULATOR: This is my favorite mortgage calculator if you want to see lots of details about the payments. You can also enter other monthly expenses (ie. taxes and insurance) to see your total monthly payments.
**Make sure compound frequency is set to Semi-Annual (Canada) by pressing the menu icon, selecting Loan Settings, then Compound frequency and select semi-annual (Canada).
CMHC MORTGAGE CALCULATOR: This is a much simpler calculator and also calculates the CMHC insurance premium.
Click here to learn more about CMHC.