What you need to know about the mortgage pre-approval process in Canada

From starting your home search to qualifying for a mortgage, buying your first home can feel daunting. To reduce some of the stress, mortgage pre-approval is a great way to kickstart the homebuying process.

What is mortgage pre-approval?

In simple terms, a mortgage pre-approval is a commitment your lender makes to hold a rate and a mortgage product for up to 120 days. If you buy a home within that period, a pre-approval can turn into a mortgage approval, pending certain conditions are met. Getting pre-approved means your lender has reviewed your credit history, employment income and other key factors to verify your financial stability and conditionally approve your eligibility for a mortgage. Essentially, lenders do this to get a better sense of your level of risk as a borrower to determine whether they should provide you a mortgage loan.

Get insight into your home affordability

Getting pre-approved sets the record straight on what you can afford from the get-go. It saves time and helps to guide your home search so that you’re shopping in neighbourhoods you can actually afford to buy in. It also manages your expectations and doesn’t put you in a position where you’re going to overspend. Based on what your down payment is, it can help you budget and account for any other household expenses, including closing costs and carrying costs.

A common mistake many buyers make is forgetting to factor these additional costs into their initial budget, often leaving them in a financial bind down the road. Pre-approval encourages buyers to capture all the unforeseen costs and plan better from the start so there’s no surprises.

Protect yourself from rising interest rates

As previously mentioned, your lender will hold your initial interest rate for a 120-day period when you get pre-approved. This saves you from unpredictable rate increases and guarantees that you’ll receive the initial agreed upon rate at the time
of your pre-approval. This also gives buyers the ability to make a purchase without rushing or delaying the transaction.

Currently in Canada, we’re seeing interest rates rise for the first time since 2020, with the expectation that further increases are possible. If you are planning to buy in 2022, getting pre-approved is a smart move to ensure you’re locking in a mortgage at a favourable rate.

Move one step closer to final approval

It’s important to remember that pre-approvals are conditional and never 100 per cent promised. If you fail to maintain the requirements set by your lender, you can be denied final mortgage approval. To ensure that you meet all of your lender’s criteria, it’s recommended to avoid:

• Making large purchases on credit
• Applying for new credit
• Leaving or switching your job
• Failing to respond to lender requests
• Agreeing to co-sign a loan

Avoiding these mistakes will make the mortgage process easier and bring you one step closer to becoming a homeowner.

How do you get pre-approved for a mortgage in Canada?

If you’re thinking about getting pre-approved for a mortgage, the first step would be to head to a mortgage company that can help. They should be able to walk you through the process, explain all the steps involved and get you pre-approved in a matter of days. At Homewise, we’ve brought the entire mortgage process online – and made it simple, quick and free. After understanding your financial situation and long-term goals, our team of dedicated mortgage advisors work with more than 30 banks and lenders to find you the best options available in the market so you can lock in a mortgage that aligns with your needs.

As a first-time homebuyer, the mortgage process can appear to be complex – but it doesn’t have to be. The key is to educate yourself on what’s involved so that you can be fully prepared and confident in the journey ahead.