Before you start the house-hunting process, there’s an important step you can take to save you time and make the process smoother: getting pre-approved for a mortgage. A pre-approval determines the home price you can afford which allows you to budget for your home purchase and focuses your home search. With a pre-approval you’ll also be able to lock in a mortgage rate in case rates increase during your home search.
What to Expect
Why Get Pre-approved for a Mortgage
How to Get Pre-approved for a Mortgage
Credit Score
Down Payment
Debt Service Ratios
Supporting Documentation
What is a Mortgage Pre-Approval?
A mortgage pre-approval is a process that provides you with important information to help you with your home search. When you get pre-approved for a mortgage, you’ll find out:
The maximum amount you can afford to spend on a home
The monthly mortgage payment associated with your maximum purchase price
What your mortgage rate will be for your first mortgage term
Applying for a mortgage pre-approval is free and it doesn’t commit you to one single lender. However, getting pre-approved does guarantee that the mortgage rate you are offered by a lender will not change for 120 to 160 days. By “locking in” your rate, you’re protected if interest rates rise while you’re shopping for a home. If interest rates go down during this time, your lender will honour the lower rate.
Pre-Approval
Start by finding out your approval amount with us, including incentives and programs available for you.
House Hunting
The search for the perfect home begins with the right realtor that can work with your best interest in mind.
Funding
We co-ordinate with the bank and lawyer to get your mortgage funds issue in order to buy the home!
Closing
Your Lawyer works with sellers, lawyers, banks & many others to legally finalize your purchase.
Programs at a Glance
Why Get Pre-approved for a Mortgage
Getting pre-approved for a mortgage helps you in several ways: It saves time in your home search because you’ll only look at homes in your price range. Getting pre-approved is also a signal to your real estate agent that you’re serious about buying, and you’ll receive faster more targeted service. Finally, when it comes time to make an offer on a home, the fact that you are pre-approved signals to the seller that you should have no problem financing the purchase, which will improve your chances in a competitive offer situation. Don’t forget that if interest rates fall while you are locked in, your lender will honour the lower rate.
The Home Buyers' Tax Credit, at current taxation rates, works out to a rebate of $750 for all first-time buyers. After you buy your first home, the credit must be claimed within the year of purchase and it is non-refundable. In addition, the home you purchase must be a 'qualified' home, described in more detail below. If you are purchasing a home with a spouse, partner or friend, the combined claim cannot exceed $750.1
To receive your $750 claim, you must include it with your personal tax return under line 369.
Credit Score
Your credit score is a measure of your financial health, and shows lenders how risky it may be to lend you money. If your credit score is between 680 and 900, you’ll qualify for a mortgage with an “A” level lender, such as a major bank.
If your credit score is below 680 and above 600, lenders will look at the other details of your finances to determine if you can qualify with an “A” level lender or not. If you don’t qualify, you’ll need to go through a “B” level lender, such as Home Trust, to get a mortgage pre-approval.
If your credit score is below 600, you will only qualify for a mortgage with a “B” level lender, and you won’t get today’s best mortgage rates.
Debt Service Ratios
Your debt service ratios are two calculations that lenders use to determine the largest monthly mortgage payment you can afford, based on your current monthly income, expenses and debt. Lenders use these ratios to make sure you can afford to make your monthly mortgage payments, even with all of your other financial commitments, so there’s a smaller risk that you could default on your mortgage payments.
How to Get Pre-approved for a Mortgage
To get pre-approved, you must meet with either a mortgage broker or a lender. To determine how much you can afford to borrow to purchase a home, they will ask you a series of questions and you will need to provide some supporting documentation.
Down Payment
Your down payment is the lump sum of money you’ll put towards the purchase of your home. In Canada, the minimum down payment you must make is 5% of the home’s purchase price. If you put down less than 20%, you’ll have to buy mortgage default insurance to protect your lender in case you default on your loan.
The size of your down payment affects how much you can borrow. For example, if you wanted to buy a house worth $300,000, you would need at least a $15,000 down payment.
$300,000 x 5% = $15,000
As of February 15th 2016, the minimum down payment is higher for homes sold for $500,000 - $999,999. You now need to put down 5% of the first $500,000, and 10% of any amount over $500,000. For example, a house worth $600,000 would require a down payment of at least $35,000.
($500,000 x 5% = $25,000) + ($100,000 x 10% = $10,000) = $35,000
Supporting Documentation
Depending on the mortgage broker or lender you sit down with, the documentation you’ll need to submit for your pre-approval may vary. For example, some mortgage brokers require proof of income for a pre-approval, while others don’t require proof until your offer has been accepted and you need to finalize your mortgage application.
Here is a list of documentation you may need to provide for your mortgage pre-approval:
Identification
Proof of income (pay stubs and letter from your employer, or a notice of assessment if you are self employed)
Length of time with employer
Proof of down payment and ability to pay closing costs (recent financial statements of bank accounts and investments)
Proof of any other assets like a car, cottage or boat
Information about other debts including:
Credit cards or lines of credit
Spousal or child support payments
Student loans
Car leases or loans
Personal loans
Hey there, do you need a Pre-Approval?
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