Are you Wanting A Pre-Approval? Know the Difference.

If you ever actually read a generic advert for a mortgage broker, it will cover the basics of the job description of said mortgage broker or firm. We arrange financing for home purchases, re-financing for people trying to alleviate their debt, switches (finding a better interest rate at a different lender) and pre-approvals.

When most people start thinking of home purchasing they say 'Hey, we should get a pre-approval so we know how much we can afford'. They will then call me or a fellow broker up and tell them as such. Perhaps say 'I saw your advert' or 'I got your name from (blank) and want to buy a house. How much of a pre-approval can I get?'.

Now, here's where things get confusing for some; they want me to give them an answer preferably during that phone call yet what they are really going to get is a pre-qualification; they are just 'feeling' things out, to see if where they should start looking in the MLS listings; which is completely fine.

However, a pre-approval is backed up by evidence of your income and debts; it is actually no different than an actual approval other than there is not currently a house associated with the pre-approval. We assume that there will be one soon however. But if you want to just tip your toe in the water, talk to a mortgage broker about a .... 



Pre-qualification

House purchase you sAyyyyyy?

A pre-qualification is slightly different in that it's a number not based on evidence but rather usually that original discussion. I can't guarantee that what I think you can borrow is what you can actually borrow; I don't have the evidence to verify that. In my experience I have found that people tend to overstate their incomes, understate their debts and at times haven't really committed to the idea of owning a mortgage, which is a really big responsibility. And that's fine and actually the point of a pre-qualification, you just want to know what some of the hurtles you will face.  


A pre-qualification boils down to me asking a few simple questions; 

1) How much is your down payment going to be?

2) How are you currently employed?

3) What do you estimate your yearly income to be?

4) What assets do you have?

5) What liabilities do you currently owe?

From those questions and a few other follow up questions, I can give you a ball-park figure of what you can probably afford HOWEVER it is not a pre-approval. If you are serious about buying, I strongly recommend the pre-approval. What you don't want to happen is to put an offer on a house with a subject to financing clause and then only have 10 business days to gather all your needed documentation. I can tell you what you need (see below) but can't help you access that information. It can become a highly stressful time of your life that doesn't need to be if you decide to go one step further and get a ...  


Pre-Approval

Stay Gold, Pony-boy

Pre-approvals are for those serious about buying and like to get the ball rolling early. It's solid evidence of the above questions. With evidence in hand (or computer) I will find you a lender, lock in a rate for you and tell you exactly what you can afford. 

The best thing about a pre-approval, besides the exact number is that all the documents I request will be needed later on for when you have an accepted offer on the table. All lenders want to see that you can carry your current debt load plus add on the suggested mortgage payment and that is where I come in; with this information I can determine your Total Debt Service Ratio. This will give you that magic number that allows you to shop in confidence.   


With a pre-approval I take those same questions in a pre-qualification and ask for proof of each answer you supply.

1) How will you pay for the minimum 5% down payment? - Is it cash in savings? gift? RRSPs? selling your current house?

2) Are you currently working? - Job letter stating such, plus current pay stub. If you are in a trade, I will need a letter of good standing from your local. If you are self-employed, financial statements including most recent income statement

3) What is your yearly income? I would require your previous year's T1 General and Notice of Assessment. If your income fluctuates from year to year I will most likely request a couple years NOAs and use an average of those numbers.

4) Do you have any assets? - If you have stocks/investments I will need to see a recent summary of your portfolio. If you have real estate I will need to see proof of that such as a mortgage statement. If you have rental properties I will need to see a tenancy agreement of some sort. 

5) Do you have any liabilities? - I will pull a credit report for you, at which time I will see all debts that are currently registered against you, including collections agencies, lines of credit, car loans and of course credit cards. The lower your balances are the higher your approval will be. 


*This is by no means a complete list but a good starting point. There will be other requirements that may be specific to a certain lender however by submitting as much of the necessary evidence as possible, it makes for a much easier, stress-free purchase. 

As always, use the contact info to ask me any direct questions you may have...

-jay