5 points to know for mortgage pre approval success. A mortgage pre approval allows you to make an offer confidently when you find a home in Ottawa that you are interested in. It also helps fast track the approval process once an offer is made because much of the work is already done. Also, if you attach your pre approval certificate to your offer, it will show the seller are a safe bet when it comes to the financing condition.
With a pre approval there is still a chance that once you find a house you may not be final approved however these chances are small. The pre approval will give you a very strong opinion on if your financing will be approved once you make an offer. The pre approval is based on a variety of factors. These factors include your income, credit history, current financial obligations and assets. Lenders are typically looking to the five C’s of credit.
Learn more: The five Cs of credit
A pre approval review will also help you determine your maximum purchase price based on your current finances. Also, to determine a comfortable price and mortgage payment that is within your budget.
Also, when a pre approval is completed typically a rate is held. This rate hold protects you against rate increases that may arise while you are looking for a home.
The pre approval process is quite simple. An application is completed, documents are provided and the lender and Ottawa mortgage broker review the information to help determine your maximum purchase price. Many fear that the pre approval process is more drawn out then this however when working with the right mortgage brokers in Ottawa it can be a seamless process. Also Ottawa mortgage brokers can help you get the best mortgage rate in Ottawa, Ontario for your purchase.
When a lender issues a pre approval it is based on current lending guidelines however lending guidelines have been fluctuating frequently over the last 10 years. Your pre approval may change or no longer be valid if mortgage guidelines change. For example when the stress test was introduced. This can affect the amount that you are pre approved for. Typically when there’s a change in mortgage guidelines it’s best to have your pre approval updated.
When interest rates increase typically the benchmark qualifying rate increases as well which can reduce your pre approval amount.
Depending on the type of property this can change your pre approval amount. For example, if you are looking at a property in Ottawa with condo fees. These condo fees will reduce the amount that you are pre approved for. It’s important to let your Ottawa mortgage broker know that you are looking at condos to ensure that the review takes into account these fees. A mortgage broker can also review a formula with you so that you know for each $100 in condo fees how much the purchase price will be affected.
Learn more: What does a mortgage broker do?
Your pre approval is based on your current circumstances. This being your current income, debt and credit history and more which are subject to change. If there is an increase in your debt, or a change in your employment this can affect your pre approval. Different types of employment are reviewed differently by a mortgage lender. For example if your income changes to contract during your pre approval stage your pre approval may no longer be valid. Also for example if you change to self employment.
Learn more: How does your employment affect your mortgage application?
Learn more: Self employed mortgage
During the pre approval stage it is important not to take on any large debts without first consulting with your Ottawa mortgage broker. Having multiple people check your credit or increasing your debt can affect your pre approval.
If you happen to miss a payment on any of your current debts this can lower your credit score and can affect your preapproval.
Most lenders pre approvals are valid for up to 120 days. This means at the end of the 120 days you will need to qualify again and have your pre approval updated. If there’s been any changes in your finances, it could affect your pre approval.
Multiple pre approvals from multiple lenders can mean multiple credit checks. Having your credit checked often can reduce your credit score. Each new lender can also see the previous lenders who have checked your credit and if the lender sees that you are seeking credit from multiple lenders this may deter them from wanting to lend to you. Multiple credit checks can also lead a lender to believe that perhaps you are getting declined with each lender which is causing you to seek another lender.
This may cause concerns for the lender. Having a pre approval from a mortgage broker versus one bank is a great idea to help reduce the amount of credit checks as the mortgage brokers credit check can be used with dozens of lenders. The one bank's credit check can only be used with themselves.
System generated pre approvals are a fast and efficient way to get pre approved on the spot however unfortunately as a computer is doing the assessment, it is not being put through the rigorous review that a human can do. The computer for example may see your income of $50,000 but not see that you are on probation or hourly. A system generated preapproval should only be used as a very broad review on if you can buy a house or not.
With a formal pre approval process a mortgage broker reviews your application, documents and credit history. They go through a series of questions and budgeting with you. This ensures that the pre approval you are getting is the right fit for you. By checking the documents upfront this helps avoid any challenges that may arise down the road. These challenges can come from inconsistencies in the income. Also, from differences between the amounts used in the application and what is on the documents. Many mortgage brokers can do this full review on the spot. From there, they send it to a lender. The lender can usually can have the results back within 1 to 2 business days.
There are certainly many benefits to a pre approval. For example, showing a seller that you are prepared to make the offer. However, on the downside pre approvals can be subject to change. Having open are regular communication with your mortgage broker in Ottawa can assist. It helps with ensuring that your pre approval stays up-to-date. Also that you are aware of any challenges or changes that may come up in the financial industry that can affect your pre approval.
Having a thorough idea of what the pre approval process is about can give you a greater understanding of the process. Also, more confidence when shopping for a home. Bottom line, a pre approval is a great idea.
Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.
Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.