Buying a house is a significant investment, and for many Canadians, the only way to afford it is through a mortgage. Before starting to look for a home, you should get pre-approved for a mortgage. A pre-approval gives you an estimate of how much you can afford to spend and helps you determine your budget. It also helps to ensure that you are ready to make an offer on a house when you find one you like.
In Canada, getting pre-approved for a mortgage is relatively straightforward. There are two primary options when it comes to lenders: mortgage lenders and mortgage brokers. Both types of lenders can pre-approve you for a mortgage, and it is essential to know the difference between the two.
Mortgage lenders are financial institutions such as banks or credit unions that lend money directly to you. These lenders have different criteria, and it’s worth shopping around to find the one that is the best fit for your situation. In contrast, mortgage brokers are independent financial professionals who help match borrowers with lenders. They work with multiple lenders to help find you the best mortgage option. Mortgage brokers do not charge you fees as they receive commissions from the lender when a transaction is made.
Before you apply for pre-approval, there are a few things you need to know. Firstly, you’ll need to have your finances in order. You will be required to provide proof of income and a list of your assets, such as savings and investments. Be sure to also have documentation of any debts or liabilities. If you’re self-employed, you’ll need to provide a copy of your business tax returns for the past two years. If you are not a Canadian citizen, you’ll need to provide proof of your residency status.
Once you have all your documentation ready, you can contact a lender or broker and ask to be pre-approved for a mortgage. During this process, you will fill out an application, which will include all the relevant details about your finances and income. You may also be required to have a credit check as lenders use your credit score to help determine the maximum amount they can lend you and the interest rate they will offer.
It’s important to understand that pre-approval doesn’t guarantee approval for a mortgage. The pre-approval is just an estimate of what the lender is willing to offer you based on your financial situation and credit history. Once you have a pre-approval, it’s time to start shopping for a house within the price range of your pre-approved mortgage.
When you find a home, the next step is to make an offer. The pre-approval gives you an advantage because it shows the seller that you are serious and ready to buy. However, it’s important to note that the pre-approval doesn’t guarantee that the mortgage will be approved. Once you have made an offer, the lender will review your application and the property before making a final decision.