Hope you are all enjoying the beginning of what promises to be a beautiful summer. This year, real estate activity in the Greater Toronto Area (GTA) has not kept pace with the steadily warming temperatures. However, the current housing inventory in the region has considerably expanded during the last few months, offering prospective buyers plenty of choices.

If you are a first-time buyer or a re-seller looking to upsize from your current residence, it is advisable to get pre-approved for a mortgage in advance to ensure a hassle-free buying process, as well as plan the near- and long-term expenditures related to buying the property. The long-awaited interest rate cut announced by the Bank of Canada on Wednesday is also expected to make the borrowing environment more conducive for buyers in the coming months.

In today’s edition of the GTA Real Estate Insight, we will share useful information on how to get pre-approved for a housing mortgage and the key things to keep in mind when approaching a lender or bank for the same.

What is a mortgage pre-approval?

Once you have decided to become a homeowner and want to start looking for homes that fit your current needs and budget, it is a good idea to find out how much debt you can afford to take on by way of a housing mortgage and if you will be able to comfortably fork out the requisite monthly payments for the next couple of decades. A mortgage pre-approval, which is free, allows you to do just that.

To begin with, you meet a mortgage broker or lender, who will start by seeking several key pieces of information, such as your current income, employment status, expenses, debt load, etc. along with how much down payment you can make on the purchase. The answers to these questions will help the lender determine if you are capable of making this sizeable financial commitment. The lender will also likely run a credit check to confirm all the information you have provided.

Once this is completed, the lender—whether it a bank, credit union, or mortgage broker working with various banks or lending institutions—will make an in-principal commitment to lend you a certain size mortgage at a particular rate, locked in for a particular period that is usually capped at 25 to 30 years. The terms and conditions of this offer will be viable for three to four months and protect borrowers against any sudden changes or spikes in lending rates.

Why get pre-approved?

Among the many advantages it offers, getting pre-approved for a mortgage:

  • Indicates you are serious about buying a home.
  • Helps you determine exactly what you can afford to buy.
  • It narrows down your search for suitable properties.
  • Allows your Realtor to offer more specific and realistic housing options. 
  • Instills greater confidence in the seller vis-à-vis your capability to finance the purchase, thereby facilitating the sales process.
  • Gives you an edge in case a competitive bidding scenario emerges during the sales process. 

A Word of Caution

Getting pre-approved for a mortgage does not guarantee approval for the final mortgage application, as once you have made an offer, the lender will evaluate the suitability of the property you want to buy to see if it meets pre-established lending requirements. You should also work with a financial advisor or mortgage professional to re-look at how much debt you can realistically and comfortably take on, even if you have been pre-approved for a higher amount. This will allow you to leave enough room to cover the multiple closing costs associated with buying a home and plan for any future financial contingencies.

Additional Resources

If you are a first-time home buyer and need more information about how to get pre-approved for a mortgage, do get in touch with RE/MAX Royal Team Sachdeva Realty for more information.

Have a good weekend!