Buying a home is one of the most exciting—and significant—financial decisions you’ll make. But before you start house hunting, there’s one essential step: getting pre-approved for a mortgage.
A mortgage pre-approval not only helps you understand your budget but also gives you a competitive edge in the real estate market. In this guide, we’ll break down everything you need to know about pre-approvals, from how they work to what can go wrong—and how to avoid it.
What is a Mortgage Pre-Approval?
A mortgage pre-approval is your first step in the home-buying process. It’s when a lender reviews your income, debts, and credit to determine if you qualify for a mortgage—and how much you can borrow. You’ll also get a locked-in interest rate for up to 120 days, protecting you from rate increases while you shop.
But here’s the catch: A pre-approval is not a guarantee. It’s a preliminary assessment, and your financial situation will be reassessed before final approval.
How Can I Get Pre-Approved for a Mortgage?
Getting pre-approved for a mortgage is easier than you might think. Follow these steps to get started:
Gather Your Documents: You’ll need proof of income (e.g., pay stubs or tax returns), a list of debts, and details about your assets.
Check Your Credit Score: Knowing your credit score beforehand helps you understand your borrowing power. If your credit score needs improving, check out “Five Steps to Boost Your Credit Score Fast“.
Choose a Lender or Mortgage Broker: Work with a trusted mortgage expert like Effortless Mortgage to guide you through the process.
Submit Your Application: Provide the necessary information and wait for your pre-approval decision.
Receive Your Pre-Approval Letter: Once approved, you’ll get a letter outlining your budget and locked-in rate.
How Long Is a Pre-Approved Mortgage Good For?
Most mortgage pre-approvals in Canada are valid for 120 days. This gives you time to shop for a home while locking in your interest rate. However, keep in mind that after 30 days, your lender may need to pull a fresh credit report to ensure there have been no significant changes in your financial situation.
Can a Pre-Approved Mortgage Fall Through?
Yes, a pre-approved mortgage can fall through if your financial circumstances change. Here are some common reasons why this might happen:
New Debt: Taking on significant debt, like buying a car or racking up credit card balances, can disqualify you.
Job Loss or Change: Lenders prioritize financial stability, so losing or changing jobs could raise red flags.
Credit Score Drop: A single missed payment or new credit inquiry can impact your score.
Bankruptcy or Consumer Proposal: Filing for bankruptcy or a consumer proposal after pre-approval can lead to rejection.
Major Life Changes: Events like separation, divorce, or the death of a co-applicant can affect your approval.
Do Mortgage Pre-Approvals Affect Your Credit Score?
Yes, but only slightly. When a lender checks your credit for pre-approval, it’s considered a “hard inquiry,” which may lower your credit score by a few points. However, multiple inquiries for the same purpose (e.g., mortgage shopping) within a short period are typically treated as one inquiry.
Real-Life Example: Why Stability Matters
Imagine this: You’re pre-approved for a $500,000 mortgage and find your dream home within budget. But just before final approval, you decide to finance a new car. The lender pulls your credit report again and sees the added debt. Now, your debt-to-income ratio has changed, and the lender denies your mortgage application.
This situation could’ve been avoided by maintaining financial stability.
FAQs About Mortgage Pre-Approvals
1. Can I switch lenders after getting pre-approved?
Yes, you can. However, switching lenders may require a new credit check and application process.
2. What happens if my pre-approval expires?
If your pre-approval expires, you’ll need to reapply. This may involve submitting updated documents and undergoing a new credit check.
3. Can I get pre-approved if I’m self-employed?
Yes, but you’ll need to provide additional documentation, like tax returns and proof of consistent income.
Tips to Keep Your Pre-Approval Valid
- Avoid Major Purchases: Postpone buying a car, furniture, or other big-ticket items until after closing.
- Pay Bills on Time: Keep your credit score stable by making payments on time.
- Don’t Change Jobs: Lenders value consistency, so avoid changing jobs unless absolutely necessary.
- Communicate With Your Broker: Keep your mortgage broker informed of any changes to your financial situation.
Download Our Mortgage Pre-Approval Checklist
Working with Effortless Mortgage
A mortgage pre-approval is a critical first step in the home-buying process. It shows sellers you’re serious, gives you a clear budget, and locks in your interest rate. But remember, pre-approval isn’t a guarantee. Keeping your finances stable is key to ensuring a smooth transition from pre-approval to final approval.
Still wondering how to get pre-approved for a mortgage or concerned about how long your pre-approval is good for?
Contact us today for expert advice and a no-commitment consultation. Let Effortless Mortgage help you make your dream home a reality!
