A pre-approval VS a full mortgage pre-approval… they sound the same but they’re very different.
Every realtor has had a client who thinks they have been pre-approved only to find out they cannot qualify for the homes they have been looking at.
Often this does not become clear until the buyer has wasted way too much of their time looking at properties they have no chance of qualifying for.
And often clients get a pre-approval certificate from a bank that has a long list of conditions attached.
What many banks do when qualifying a buyer for a mortgage is to just ask a few basic questions such as, “What is your annual income?”, and, “What are your debts?”.
The problem is that the banker or mortgage broker is relying on verbal information that may be inaccurate or that may not meet today’s new mortgage guidelines.
Then they will give you one of two things… a verbal quotation on how much you can borrow OR a written “Quick Qualifier”.
The problem with both is that they are conditional upon three things… you supplying satisfactory proof of income & down payment and you having a satisfactory credit bureau.
Basically, you have nothing until all three of the bank’s conditions have been met!
A FULL mortgage pre-approval goes much deeper… and many bank reps don’t want to spend the time up front with the buyer unless they’re guaranteed to get the mortgage business.
Getting a full mortgage pre-approval means you need to provide up front all the documentation… proof of income, proof of down payment and get your credit bureau done… all ahead of time.
The client is asked not only how much their income is BUT how that income is earned. Full time/part time/over time/contract/self-employed. All this information is reviewed and considered differently at the time of mortgage approval.
The source(s) of your down payment are reviewed and a credit bureau report is looked at.
When completed, the client's personal covenant has been reviewed and an accurate budget established based on what they want to spend and what the banks will lend them.
If a client needs a guarantor or a co-signer, they find out right away, not when they have made an offer and wasted countless hours of their time.
Of course, obtaining a great interest rate is an important part of this process too.
This is the highest rate you would pay. Your mortgage broker is only beginning to work for you since the lowest rates are often not offered until 45 days prior to your closing date and are not available with a pre-approval.
Remember… you’ll need to supply all this personal information anyway so it’s to your advantage to provide it up front ahead of time.
Once you have full mortgage pre-approval in place it is just like having a credit card with a set limit to go and buy a condo or house. Now you know yourself that if you have a credit card with a limit of $5,000, you can confidently go out and buy something for up to $5,000 without question.
It’s the same thing here! By getting that full mortgage pre-approval in place, it’s like having a credit card to go out have a mortgage of up to $400,000 or whatever your number is.
If you add on the down payment that you have, let say $40,000, then you can buy up to a purchase price of $440,000.
It’s a tremendous value just having that mortgage ‘credit card’ in place so that you know for sure exactly how much you can purchase!
There are two major benefits to doing this ahead of time… First you now know without question exactly how large of a mortgage you can qualify for and secondly, there will be NO stress once you buy that your mortgage will not be approved.
Just add on your down payment and you now know the maximum price you can pay for a home.
Many people mistakenly believe that by just filling in an online form or having a conversation with a banker where they verbally provide data about their income and their debts is enough to go out and buy a condo or house.
It ABSOLUTELY is not enough and it’s very dangerous to buy any home based on just this.
To be 100% sure of your financial capability, and get a FULL mortgage pre-approval, a prospective buyer must provide their banker or mortgage broker with proof of income, proof of down payment and have a credit bureau done.
Here’s what you’ll need to provide…
- A completed mortgage application form
- For proof of income, you’ll provide a copy of your employment letter, a current pay stub and your last income tax return with T4s and Notice Of Assessment from Revenue Canada
- If you are self-employed, you’ll need to provide a copy of three years of Revenue Canada tax assessment statements.
- For proof of down payment, you’ll provide a copy of any GICs, term deposits, or RRSPs plus a copy of your bank statement showing current cash in the bank. If you’re getting funds from a family member, you’ll need to provide a copy of a gift letter signed by that person.
Your lender or mortgage broker will then do a credit check and they will issue an Unconditional Pre-Approval Certificate, which is the lender’s guaranteed mortgage commitment to the buyer.
It is conditional only upon an appraisal or CMHC/GE Capital mortgage insurance approval.
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