When you are seriously considering purchasing a home, it is a wise decision to get a pre-approval for a mortgage. The pre-approval will give you an idea of the price range in the homes you can look at. Mortgage pre-approval will also bring you one step closer to establishing your financing when putting in an offer.

Do I have to have a Mortgage Pre Approval to Attend an Open House?

This is a common question many first time home buyers have. While it is a good idea to have mortgage pre-approval before looking for a home, it is not necessary.  Attending open houses without a pre-approval will only slow down the purchasing process if you are serious about buying a home.

Mortgage Pre-qualification Versus Mortgage Pre-approval

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Mortgage Pre-qualification

The mortgage pre-qualification process is much different from the mortgage pre-approval process. The lender, when taking your application for pre-qualification, discusses your plan to get a mortgage. Information such as income, assets, and liabilities will be discussed without evidence of your finances. A credit check will not be conducted at this time. The lender gives you an estimate of the amount of mortgage you may qualify for. There is no contractual commitment at this time. The further financial investigation could change their assessment.

Mortgage Pre-approval

In the mortgage pre-approval process, you will be required to show documentation of income, assets, and liabilities. You must give consent for the lender to conduct a credit check. Once you are pre-approved, the lender will advise you of the maximum amount they would be willing to lend you. Certain conditions may apply to attain the mortgage. During the mortgage pre-approval process, you can lock in a mortgage rate for a set period. This means if the rates go up, you are protected. However, if the rates go down, you would get a lower rate. At this time, you would be provided with a pre-approval certificate or a written confirmation.

The Pros of Obtaining Mortgage Pre-approval

Obtaining mortgage pre-approval can save a buyer a lot of time. A pre-approval will help determine what price range you can look in. And what your approximate monthly mortgage payment would be. This will save time by narrowing down your search. Having a pre-approval would give you the advantage of realtors taking you seriously. Many realtors do not like to waste their time with buyers who do not finance ready. The ability to lock in your mortgage rate with a pre-approval is a huge benefit. This will protect you against a rise in interest rates for a predetermined period of 90-130 days. Sellers may be more motivated to give your offer priority if you have pre-approval. A pre-approval does not mean you have to go with that lender; there is no commitment or penalties involved.

The Process of Mortgage Pre-Approval

Mortgage approved

The pre-approval process normally takes only 1 or 2 days. Having all your required paperwork during the application process will save time.  It is very important that the lender fully reviews all your paperwork. This will avoid any surprises later. Some lenders will provide a rate hold with no underwriting. They may still call it a pre-approval. However, may have not reviewed all documentation in its entirety.

Documentation Required

When applying for a mortgage pre-approval, you will be required to provide a lot of documentation. You will need to provide personal information and identification such as:

  •  Your Social Insurance Number and photo ID.
  •  Your proof of income. T4 slips, pay stubs, or notice of assessment.
  • Proof of employment will have to be provided. Your employer will need to provide you with a letter confirming your employment, salary, employment status, and the length of your employment.
  • You will also be required to show proof of down payment via bank statements and investment accounts.
  • Proof of other assets such as property, vehicles, jewelry, and so on, will increase the amount you may qualify for.
  • Proof of debts and liabilities must be provided. Any current credit card statements. Lines of credit, personal loans, and vehicle loans. Child or spousal support payments. Current rent or mortgage payments must be provided.

A hard credit check will also be done at this time, with your consent.

Conditions of the Mortgage Loan

At the time you are applying for the pre-approval, certain conditions of the loan will be discussed. The mortgage rate, the term of the mortgage are important factors. Many other fees will be discussed.  Prepayment penalties, appraisal fees, and possible broker fees will be discussed. Details surrounding the mortgage, like portability and prepayment options, will also be discussed. An estimate of your monthly mortgage payment will also be determined. The frequency of your payments will determine the amortization period of your mortgage.

No Guarantee with a Mortgage Pre-Approval

Potential home buyers with a mortgage pre-approval are not guaranteed. The lender may not approve your final mortgage application. Many things can change and go wrong.  For example, changes in your financial situation could change the mind of your lender. Loss of job or even a change in jobs could jeopardize your pre-approval. Adding more debt would impact your debt to income ratios. Your credit score changes because you missed payments on credit cards or loans. You do not have enough to pay your closing costs.  Information you missed or falsely provided at the pre-approval process.

Personal Decision to Attend Open Houses With or Without a Mortgage Pre-Approval

Ultimately, the bottom line is that it is a personal choice to attend open houses with or without a mortgage pre-approval. Some buyers that are considering purchasing a home will attend open houses. The buyers may not be ready yet. These potential buyers would more than likely not obtain a mortgage pre-approval.  They would when they are ready to look seriously. Some buyers may be expecting a change in financial circumstances. Inheritance of some sort could make a difference. These buyers may not know the total amount they are expecting. However, may choose to start looking at homes while they wait.

Resources:

https://www.savvynewcanadians.com/how-to-buy-a-house-in-canada-step-by-step-guide/#_Toc487372747
https://www.whichmortgage.ca/article/understanding-preapprovals-118340.aspx
https://youngandthrifty.ca/buying-a-house-in-canada/
https://www.moneysense.ca/spend/real-estate/buying/8-simple-steps-to-take-to-start-the-home-buying-process/
https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/making-offer-purchase-a-homeg-process/