Mortgages 101: What You Need to Know About Getting Pre-Approved in Toronto
Q: What's the First Step to Buying Property in the City of Toronto?
It's not house hunting. It's not booking showings. It's not making a real estate action plan with your agent.
The first step to buying property is getting pre-approved for a mortgage, and amongst rising interest rates in Toronto, it's best to start the process as soon as possible.
A pre-approval is your golden ticket to buying property as it confirms that you qualify for a mortgage loan. It also highlights the mortgage and monthly payments you can afford amongst your financial obligations. Getting pre-approved is a swift and secure process which ensures home sellers that you are fully prepared to purchase property. Pre-approvals also lock in your interest rate for up to 120 days for one product at a time, providing buyers with security throughout their home search.
How Can I Get Pre-Approved?
Pre-approvals involve three parties: the broker, the bank, and the buyer.
Mortgage brokers take it upon themselves to connect you with the bank and arrange the lending transaction after reviewing your assets, income, and credit/debt history. The bank (AKA the lender) analyzes your financial portfolio to identify the maximum amount they may lend you alongside your interest rate.
As the buyer, you are required to provide the following:
Government-issued valid identification
Proof of employment
Proof of current salary or hourly pay rate
Your job title and length of time with the employer
For self-employment: Notice of Assessment from the CRA for the past two years
Proof you can pay for the down payment and closing costs
Disclosure of your other assets
Car, cottage, boat, properties
Disclosure of your debts or additional financial commitments, such as
Credit card balances and lines of credit
Child or spousal support
Car loans
Student loans
Pre-approval v.s. Approval Amount
The pre-approval mortgage amount outlines your maximum mortgage amount, but it does not guarantee that you'll be officially approved for that amount. The approved mortgage amount is contingent on the value of the property you select, and the confirmed down payment value. Keep in mind you will also need to budget for moving costs, closings costs, and home maintenance.
In some cases, it’s possible that your lender could decline your mortgage request even after you've been pre-approved. Causes for this include poor credit history, changes in employment between the pre-approval and approval process, new debt, or if your appraisal returns low. Other options for securing a mortgage include
Taking on a lower mortgage amount
Accepting a higher interest rate
Providing a larger down payment
Bringing on a co-signer
Avoiding new debts or changes of employment throughout your home buying process
For many Canadians, buying property is one of the most significant and most financially influential purchases they'll ever make. Securing your pre-approval is the first step to entering the GTA housing market with confidence in your capabilities in the market and your ability to place a considerable offer.
