Whether it’s your first time in the housing market or you’re a homeowner with previous experience, buying a new home is an exciting prospect—but it’s also a process that takes time, involves several steps and may leave you with questions.
If you’re house hunting, you may have wondered, “What is a pre-approved mortgage?” In short, it’s a certificate that will save time and help gain clarity in your search. Here’s exactly how to get a pre-approved mortgage so you can act quickly when you find your dream home.
What is a pre-approved mortgage?
Getting pre-approved for a mortgage means your credit union or bank has already assessed your financial situation. Based on your current circumstances, they have determined the maximum amount you’re qualified to borrow.
Once you’ve completed the steps to mortgage pre-approval, you aren’t obligated to take out a mortgage for this amount—or a mortgage at all—but it provides you with a budget when viewing properties for sale.
This isn’t just for first-time homebuyers, either. Getting a pre-approval is also helpful when you’re selling your existing home and buying another property. If you’re shopping for another home, this step will clarify your current financial situation, the timing of the sale and the mortgage amount you can afford.
“Pre-approval is so key,” says Masharee Lindsay, Financial Advisor at ACU’s Pembina Branch. “It answers homebuyers’ common questions—showing what you can afford and what is a realistic budget based on current rates.”
Why get pre-approved for a mortgage?
Now that we’ve answered the question, “What is a pre-approved mortgage?” let’s explore why this step is worth taking. For members who are serious about buying their next home, there are three main advantages to getting pre-approved before starting your home search:
1. Saving time: Having an ACU Pre-Approved Mortgage Certificate in place sets out exactly how much home you can afford—allowing you to focus only on the properties within your budget and increasing the chance of a successful purchase. Further, realtors are often keen to work with pre-approved buyers as it demonstrates you’re committed to the process. It saves everyone time when you’re ready to make an offer.
“Mortgage pre-approval is the first step in home buying process. It guides you in the home-buying process, including informing on affordability and mortgage rates,” says Glenda Bahalla, Financial Advisor at ACU.
2. Locking in your rate: Your mortgage interest rate will be guaranteed for 120 days. If rates go up and you’re still searching for the perfect property, you’ll have peace of mind knowing your rate is locked in.
3. Education: During your mortgage pre-approval, your ACU advisor will walk you through more than just your finances. You’ll get a holistic view of the costs and process associated with buying and owning a home, including: mortgage payment terms, property tax, insurance, inspection, appraisal fees, legal costs and other professionals you should contact.
After you’re pre-approved, your advisor will run you through options to help you find the type of mortgage that best fits your needs.
According to a recent CMHC survey, as many as 40% of homebuyers were concerned about unforeseen housing costs—and only half of buyers discussed the potential unexpected costs with a mortgage professional.
“Before we even get into the process, we have those conversations about budgeting. Are they prepared? What are they looking for in a home, mortgage and other financial priorities? Homebuyers need to start with a conversation to set the foundation and determine all their current and future costs,” advises Marsharee. “I like to talk to them about everything that will come into play while I have them in my office. That way the member has more confidence in their home purchasing power and we’re all more prepared for the next steps.”
Employment and income: Using your T4, recent notices of assessment, recent pay slips and any additional income sources, your mortgage specialist will verify your regular income, averaged over two years.
Confirmation of your down payment: Your advisor will confirm that you’ve held your down payment funds for at least three months. You’ll need investment or savings account statements, proof of withdrawal via the RRSP Home Buyers’ Plan, a sale agreement or plan to sell an existing property or a gift letter. They will also consider the amount of your down payment.
Credit check: Your advisor will ask to run a credit check to complete the application process.
Identity: For pre-approval, you’ll need two pieces of government-issued identification, as well as your social insurance number.
Steps to mortgage pre-approval
The pre-approval process starts with a visit to your ACU financial advisor. For all people on the mortgage application, your advisor will gather and look through a number of documents, to verify:
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