What is mortgage preapproval?
When you apply for a home loan, you may hear the term “conditionally approved” or “pre-approved”. This article will explain how these terms differ from other financing offers.
A lender may give a mortgage pre-approval after reviewing your income and assets. It’s the first step in the process that lets you know if you’re eligible to borrow, and if yes, the amount you can qualify for. Before house-hunting, you’ll need to know the price range that you can afford.
Not all pre-approvals are the same so you need to ask your lender or mortgage broker exactly what they are offering. A pre-qualified approval is the easiest form of mortgage approval to get and the most common type. A lender will examine your income and obligations and give a mortgage estimate based on confirmation of the information you have provided. If your circumstances changes or there were errors in the original application, then the amount may change or the pre-approval will be withdrawn. A lender will usually not commit to a “verified approval” until there is an offer to purchase on the table. This saves everyone time especially if the conditional approval was fairly clear and easy to understand. A letter of commitment is another type of approval. This is a promise from the lender to the borrow to extend funds shown in the letter of commitment contract.
Conditions for a mortgage pre-approval might be the need for the borrower to provide additional paperwork or prove income from sources other than employment. A lender will sometimes ask to see where a down payment is coming from. Lenders will allow down payments from RRSPs, TFSAs, gifts from relatives, and other sourses. They will generally not allow down payments from personal credit if it affects your debt ratios. It’s very important that you don’t make any large purchases while you are looking for a home. A furniture loan or new car will affect your ability to qualify. Other conditions may be imposed by the lender based on the type and location of the property. For example, a septic inspection or land survey may be required if there is some question about how these will affect the value.
Visit these lenders to ask about mortgage pre-approval and then contact a sales representative to begin looking for a new home.
- Bank of Montreal
- Canadian Imperial Bank of Commerce
- Royal Bank
- TD Canada Trust