If you want to buy your own place, you’ll need to know how much you can afford. Your finances play a big role in this, and getting a mortgage pre-approval will help you understand your buying power.
How Does Mortgage Pre-Approval Work?
A mortgage pre-approval is a process that potential home buyers can use to see how much money a lender is willing to lend them. It is often recommended that buyers get pre-approved before making an offer on the house. The pre-approval process includes assessing the maximum mortgage amount you qualify for, your estimated monthly payments, and your interest rate.
Your mortgage pre-approval locks your interest rate for a set period, usually 90-120 days. If interest rates go up during that time, you’re still guaranteed the original rate. However, if rates fall, you can try to get a lower rate when you’re ready to close on your mortgage.
Remember that some lenders can only offer you a fixed interest rate for the duration of your pre-approval period. Based on the Bank of Canada’s policy rate, variable mortgage rates can change at any time. Pre-approvals are good for 90-120 days, although some lenders may offer them for up to 130 days.
What Are the Requirements for a Mortgage Pre-Approval?
Regardless of which mortgage lender you go to, you’re going to need to provide the following information:
- Your identification
- Letter of employment and proof of income
- Position and length of time with your current employer
- Additional income and assets
- Outstanding debt
- Bank statements
- Down payment
- Notice of Assessment from the Canada Revenue Agency for the past two years (self-employed individuals only)
- Permission to allow the lender to obtain your credit report
How to Apply for Mortgage Pre-Approval
Since it doesn’t cost anything to get pre-approved, comparing offers from different lenders is a good idea. Most lenders will do a hard credit check as part of the pre-approval process, so make sure your credit score is in good shape before you start shopping around.
Multiple credit inquiries from different lenders within a short period (usually 14 to 45 days) will only count as one hard check on your credit history so it won’t have a big impact on your credit score.
You can contact different mortgage lenders to see how much you’ll be approved for and what interest rates they offer. Or, you could use a mortgage broker who will shop around for you. The lender pays mortgage brokers, so there’s no cost to you.
It usually takes a day or two to hear back after applying. With formal approval, you’ll know exactly how much you can spend. Keep in mind that there are other costs like closing costs, moving costs, and ongoing maintenance. You may not want to spend your entire budget on housing.
Getting pre-approved for a mortgage is a great first step toward buying a house. If you get it done early in your house-hunting journey, you can compare mortgage offers and better plan your budget. The pre-approval process can take a little time and paperwork, but it is worth it when you are ready to make an offer on a home.
Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, commercial clients, and more. We also help clients with refinancing, pre-approvals, and debt consolidation. If you’re a first-time home buyer in Ottawa, we can help you find the right mortgage in the right neighbourhood. Get in touch with us today and let us know how we can help!