In a world where owning a home is getting pricier each day, mortgages are becoming one of the best ways to fulfill home-owning dreams. Although a mortgage is not a cure-all for people seeking to own houses, it is still one of Canada’s most popular ways to buy homes.
However, getting a mortgage isn’t a straightforward thing. A mortgage is a loan, and there are several steps that you need to go through to get one, including preapproval. That brings us to how to get pre approved for a mortgage. How do you convince a bank or financial institution to give you one?
- What Is Mortgage Preapproval?
- What Lenders Look for In Mortgage Preapproval
- The Preapproval Process
- What Things do You Need to be Pre-approved for a Mortgage?
- Preapproval and Pre-Qualification: How do They Differ?
- The Importance of Mortgage Preapproval
- How To Increase Mortgage Pre approval
- How To Apply for A Mortgage in Canada
- Get Pre-Approved for a Mortgage in Canada. It only takes 5 Minutes!
- What Should You do If a Lender Refuses Your Mortgage Application
- Frequently Asked Questions on How to Get Pre Approved for a Mortgage
- The Bottom Line: How to Get Pre Approved for a Mortgage
Getting a mortgage might appear straightforward, but you might not even pass the approval stage if you don’t know all the steps. Read on to the end to find out how to get approved for a mortgage Canada.
What Is Mortgage Preapproval?
Mortgage preapproval is the process by which lenders determine how much money a potential home buyer can borrow to purchase a home. Simply put, it is the process by which a lender knows whether you have the financial ability to buy a home.
What Lenders Look for In Mortgage Preapproval
Lenders want borrowers who can afford higher mortgage payments if rates rise. A lender will look at three significant elements for preapproval:
- Income: The preapproval process is a mortgage application, and since mortgages are loans, the lender needs to know your final standing. The most accurate way to gauge that is to look at your income.
- Assets: Besides your income, your assets will also go a long way in determining the amount of money you can borrow in your mortgage. The better state your assets are in, the more money you can borrow.
- Credit History Scores: A lender’s approval or denial of your mortgage application may depend on what credit score range you fall into and whether the lender says you have a “positive risk” for defaulting on a loan that they are about to give you.
The Preapproval Process
Many people might assume that they can simply walk into a bank and quickly get pre-qualified for a mortgage. While this is true, it is also the case that they will not get preapproval.
The following steps will guide first-time home buyers through the mortgage pre-qualification process. The three steps of how to get pre approved for a mortgage are:
Step 1: Gather Information
The first step in how to get pre approved for a mortgage for your home is to gather all the information you need to provide. These documents will include tax returns, pay stubs, and proof of income.
You will also need to get a credit report, have your employer fill out an income verification form, gather bank statements, and provide documentation regarding self-employment.
Step 2: Fill Out the Mortgage Application Form
Once you have gathered all the necessary information and documentation, it is time to fill out your mortgage application form. Your lender will provide you with a necessary application form which you will need to provide detailed personal information.
That will include questions about your income, assets, employment status, and current debts.
Step 3: Submit Documents to Lender for Review
After filling out all the paperwork, you will need to submit your documents and application form to your lender then wait for their decision. This is the final step of how to get pre approved for a mortgage.
It will typically take about one week to get you your preapproval verdict. That will depend on whether you gave the lender all the information they need and how fast it takes them to verify it.
What Things do You Need to be Pre-approved for a Mortgage?
You already know that how to get pre approved for a mortgage involves filling out an application that will ask for details about your income and expenses and what loan amount you are looking for. However, there are a few things you will need to provide. Those are:
- Proof of income, like pay stubs or bank statements
- Proof of employment
- Information on your financial obligations and debts, if any
- Information about all your assets
While providing employment proof, you will need to include:
- Evidence of your current earnings
- How long you have worked with your employer and your position
If you are a self-employed Canadian, you will have to provide two (2) years of notice of assessment from the CRA (Canada Revenue Agency). It is essential to be honest with everything you provide to avoid any trouble further down the line.
Your lender will do their best to verify your information and then pre-approve you for a particular loan amount. You will get an approval letter telling you how much money they can lend to you, which can help when house hunting.
Preapproval and Pre-Qualification: How do They Differ?
Preapproval is when you have been given an official offer for a mortgage, which means the lender has verified your information and decided they want to lend you money. It also means that you can borrow a particular amount of money for a mortgage.
On the other hand, pre-qualification is when you are given a rough estimate for how much money you will be able to borrow. Here, your lender will not do any verification of your information.
Prequalification usually requires lesser information from you than preapproval. That’s because it needs less rigorous assessments before you can get pre-qualified. Preapproval will usually be based on verified data like credit card information.
The Importance of Mortgage Preapproval
Knowing how to get pre approved for a mortgage and being pre-approved can give you more confidence and security while house hunting. It wouldn’t make sense to start choosing a home you want to buy when you don’t even know if you can qualify for a mortgage that will get you the house.
Preapproval tells other people you are serious about buying your home. That makes it easier to negotiate prices with sellers. They get to see that you are ready to leave no stone unturned in the home buying process. That gives them the confidence to deal with you and gives you a competitive edge over any other buyers on the market.
It also shows that you are ready to make your dream home a reality, which may help you get the house of your dreams. Since it is the first step in getting a home, clearing the preapproval process might inspire in you the confidence to go all the way.
So, if you were wondering why you need mortgage preapproval, you have your answer.
How To Increase Mortgage Pre approval
Buyers can pay more attention to finding the right house when they know how much mortgage they can afford. The mortgage rate you can get depends on your preapproval rate. The higher the rate, the more significant the mortgage you might get.
Here is a list of tips that can help you boost the rates of how to get pre approved for a mortgage:
1. Boost Your Income
Income has been the running theme of this piece so far. That’s because whether you get the ideal mortgage will directly hinge on your income. Therefore, boosting your income will go a long way in increasing your preapproval chances.
You could do this by negotiating for a salary raise or increasing your income sources.
2. Appraise and Improve Your Credit History
This will require you to be on top of things on matters of your credit history. You should always be knowledgeable regarding this. That will not only come in handy when negotiating a mortgage rate but also for preapproval.
Your credit history will tell lenders whether you are the type of person who makes debt payments on time or not. It thus follows that excellent credit history will boost your chances of preapproval significantly. Here’s what to do if you have bad credit and you want a mortgage.
3. Pay Your Debts
Your debt load directly affects the amount of money you can secure for a mortgage. That’s why it is a good idea to whittle down your debt list before seeking preapproval. That will boost your chances of getting pre-approved since you have a less stressful debt load and won’t be a lending risk.
4. Make A Plan for Your Payments
A preapproval letter is not a promise of lending but a sign that you can get the mortgage if your application goes well. It means that you should start planning how to pay it back because getting approved for a housing loan will affect your credit history, even if you don’t get the house.
You should show that you have a steady source of income and no problems paying bills on time, so having a financial plan is advisable.
5. Have a Considerable Down Payment
Although getting pre-approved for a mortgage doesn’t mean that you will secure the financing, it’s still better to be ready at all times. The loan officer will consider your down payment, which might affect the amount you can qualify for.
Therefore, the larger your down payment then, the higher your chances of getting a preapproval. That will also mean you can get a higher mortgage ceiling.
Now that you know the tips of how to get a mortgage in Canada, how do you apply it?
How To Apply for A Mortgage in Canada
First, you have to start your mortgage application. Mortgage companies in Canada will want to see income verification and credit reports. That will help them decide if they can offer you a specific type of loan and under what terms.
Next, you’ll have to come up with a down payment for your home. A good mortgage broker can help you figure out which type of mortgage will be right for you.
In Canada, most mortgages require a 20% down payment on the property’s purchase price, including your real estate agent commissions. There are options available for those with less than 20% down; however, they come at a higher interest rate.
When it comes time to sign the final mortgage papers, your lawyer can go over everything with you to avoid surprises.
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What Should You do If a Lender Refuses Your Mortgage Application
How to get a mortgage application accepted isn’t all that straightforward. Unfortunately, even in the best of circumstances, being turned down for a mortgage is possible. Real estate industry experts estimate that 3 to 5 percent of all mortgage applications are declined.
The reasons cited range from underwriting mistakes and credit problems to completion failures or lack of funds. Here’s what you can do if this happens to you.
Don’t panic. Lenders decline most mortgage applications for a good reason. Do not assume that they will always turn you down when applying.
Get a second opinion. If you are not satisfied with the information provided by your current lender, shop around a little to find another mortgage company that can better meet your needs.
Do not give up on buying your home. Even if you miss out once or twice, keep trying until you find a lender willing to work with you on any problems. Remember that you may shop around for another mortgage loan from another lender in the future, so do not give up on your goal of purchasing a home.
Reconsider your financial situation and try to improve it if necessary. Sometimes, you may need to reconsider the amount of income available for a mortgage loan and seek companies with lower requirements.
However, remember that even though this is an option that you can consider, it may be better to boost your income for the time being.
Frequently Asked Questions on How to Get Pre Approved for a Mortgage
How long does it take to get a mortgage approved?
On average, it might take you about two weeks to have your mortgage approved. It can be faster, though, depending on the lender you decide to go with. With some lenders, it might be as fast as a day or two.
How do I get approved for a mortgage in BC?
Here are the four (4) most important elements to get approved for a mortgage in BC:
1) You’ll need to show that you have a steady source of income.
2) You’ll need to establish a good credit history.
3) Have an adequate amount ready for the down payment.
4) It is very important which property you choose. Lenders want to make sure that if you are unable to pay your mortgage, the home will be able to sell quickly and without problems.
How long for bank to approve mortgage?
Generally, it usually takes a bank two to six weeks to approve a mortgage approved. However, a mortgage broker can help you speed up the process by locating you the best offers that match your circumstances.
How long to get a pre approval letter for mortgage?
You could get your preapproval letter as early as one business day depending on your mortgage letter and if you qualify. But usually, it takes a couple of days or a week to receive. Also, if you have to ugo through an income audit or other checks, it might take longer.
How to get approved for more mortgage?
Follow these strategies to get approved for more mortgage:
1) Boost your credit score and try to get lower rates from creditors.
2) Get a less expensive property.
3) Make a down payment of at least 20%.
4) Make someone else co-sign the loan.
5) Wait until the economy improves.
6) Look for alternative sources of income.
How to increase mortgage pre approval?
Five steps to take to increase mortgage preapproval:
1) Make a larger down payment. The size of your down payment is one of the most important considerations in determining how much mortgage you will be approved for.
2) Increase your earnings.
3) Pay off any outstanding debts.
4) Look for a cheaper mortgage rate.
5) Strengthen your credit rating by improving it.
How far in advance should I get pre approved for a mortgage?
The ideal moment to get preapproved for a mortgage in advance is just before you begin looking at houses. Preapproval allows you to choose what you can afford by determining how much money you’re qualified to borrow. However, if you don’t want to, you may not have to spend as much money as you can borrow on a home.
Is it better to be preapproved or prequalified?
Getting preapproved is better. Prequalification usually entails a less thorough evaluation, while preapproval implies that you would be required to provide a lender with more personal and financial information. As a result, an offer based on a prequalification may be less certain than one based on a preapproval.
Can you get denied after pre-approval?
Yes, you can be denied a mortgage loan after being pre-approved. A pre-approval does not assure you of the loan but can be a valuable tool that gives you a competitive edge as you shop for a home.
Can I make an offer on a house without pre approval?
Yes, you can make an offer on a property without pre approval. You have nothing to fear from a legal standpoint if you do so. Anyone may make an offer to acquire a house that is presently for sale.
How long does pre approval last?
How long a mortgage preapproval lasts before expiring varies depending on your lender. However, in the vast majority of cases, it will endure for roughly 60 – 90 days. Within a few months, your financial situation may alter dramatically.
The Bottom Line: How to Get Pre Approved for a Mortgage
We hope the tips we have shared here have helped you know more about how to get pre approved for a mortgage. If you are interested in getting a mortgage, it will all come down to how stable your income is and whether or not you get pre-approved.
Follow a few of the how to get pre approved for a mortgage tips we mentioned here and boost your preapproval chances to get a reasonable mortgage rate.