A pre-approval is not a promise, and it is not an application for a specific house. It is a lender looking at your income, your debts, and your credit, and telling you what they would likely lend and at what rate, held for a set period.
Done properly it is the most useful hour you will spend before you start shopping.
Pre-qualified and pre-approved are different things
A pre-qualification is a rough estimate based on numbers you have told someone. No documents, no credit check. It is worth roughly what it costs, which is nothing.
A real pre-approval means the lender has pulled your credit, seen your income documents, and committed to a rate hold, usually 90 to 120 days. That is the one a realtor takes seriously and the one that protects you if rates move.
What you need to have ready
- Two recent pay stubs and a letter of employment, or two years of tax returns and Notices of Assessment if you are self-employed
- Two years of T4s if you have bonus or overtime income
- Proof of your down payment, and where it came from, going back 90 days
- A gift letter if any of it is from family
- A list of your debts and their monthly payments
The 90 day rule on down payment catches people out. Lenders have to see the money’s history, so a large deposit that appears from nowhere the week before closing creates a problem. Move money early.
The rate hold is the quiet benefit
If rates rise during your hold, you keep the lower rate. If they fall, you get the lower one. It only works in your favour, which is why getting one early costs you nothing even if you are months from buying.
Things that will break it
A pre-approval is conditional, and people undo their own approvals surprisingly often. Between pre-approval and closing, do not change jobs, do not finance a vehicle, do not open a store credit card for the appliances, do not move large sums between accounts without telling me, and do not let a bill go to collections.
Lenders re-check before funding. The furniture can wait until the keys are in your hand.
It is not final approval
Worth saying plainly. Once you have an accepted offer the lender still has to approve the property itself, which means an appraisal and, on rural files, a look at the well, the septic, and the access. A pre-approval tells you about you. It says nothing about the house.
That is why I ask people to keep a financing condition rather than going in firm, particularly on anything rural in Oro-Medonte or cottage country.
When to get one
Before your first showing. Not after you have found something, and certainly not on a Saturday when an offer is due Sunday.
If you are thinking about buying in the next year, would it help to get the pre-approval sorted now so you are not doing it under pressure later?
General education, not financial advice. Figures are illustrative and subject to lender approval (O.A.C.). Lora Fenn, Mortgage Agent Level 1, Lic. #M25003153. Dominion Lending Centres YBM Group, FSRA #11129. 705-881-2780 · lfenn@dominionlending.ca
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