When you’re in the process of buying a house, it’s crucial to know what kind of mortgage you qualify for. Getting preapproved for a mortgage can give you an idea of which loan products you might be able to secure, as well as how much of your purchase a mortgage lender will be willing to finance.

Let’s explore how a mortgage preapproval can benefit you as a home buyer, the process for getting preapproved and what you’ll need in order to apply.

What Does A Mortgage Preapproval Do?

Getting preapproved for a mortgage will give you insight into what mortgage types, interest rates, and terms and conditions you’re eligible for. At this step in the home buying process, a lender will also determine the maximum mortgage loan amount you’re likely to be approved for based on your current employment status, income and creditworthiness.

Keep in mind that a preapproved mortgage isn’t a commitment to any one lender – or even a guarantee that you’ll get final approval from that lender for the estimated rate and loan amount. However, preapproval can serve as a guide to how much home you can afford, and give you a sense of your borrowing costs.

Preapproval isn’t the same as mortgage prequalification, which is a rougher estimate of your mortgage options based on self-reported information.

How A Mortgage Preapproval Works

Applying for mortgage preapproval should generally take place early in the home buying process, and almost always before you make an offer on a house. Getting preapproved with one or more lenders can also be a great way to compare and narrow down your borrowing options. 

To preapprove you for a mortgage, lenders will require certain personal and financial information from you. Lenders will also perform a hard credit check on your credit report, which may temporarily lower your credit score. Based on their review, a lender may preapprove you for a certain mortgage amount and interest rate.

You can use your mortgage preapproval to shop around for and compare lenders, who may vary in their preapproval offers. Ideally, this will help you find a lender that offers the most favourable interest rates and a mortgage product that suits your personal situation.

Where To Get Preapproved For A Mortgage

A variety of financial institutions offer mortgage products. You can apply for preapproval through:

  • Banks, including any of Canada’s Big Five banks – Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Scotiabank, Bank of Montreal (BMO) or Canadian Imperial Bank of Commerce (CBIC)
  • Federally or provincially regulated credit unions
  • Alternative lenders (also known as B lenders), who may approve borrowers unable to qualify for a prime mortgage with a big bank or credit union

Mortgage brokers can also connect you with different types of lenders and help guide you through the mortgage process.

Why Get A Mortgage Preapproval?

A mortgage preapproval can benefit you in many ways. 

Real estate agents and sellers prefer to deal with clients who have already been preapproved for a mortgage, as this tells them you’re more likely to follow through with a home purchase. Preapproval also gives you – as well as real estate agents and sellers – a good sense of how much you can afford to offer on a home.

Additionally, you may be able to use a mortgage preapproval to lock in a certain interest rate. Depending on the lender, your preapproval may come with an interest rate that’s guaranteed for a specific period of time, usually 90 – 120 days. This means that if mortgage rates happen to rise while you’re house shopping, your lender can still offer you that lower rate if your final application is approved.

How To Get A Mortgage Preapproval

To get preapproved for a mortgage, you’ll need to submit an application to a lender. Preapproval applications will require you to provide personal and financial documents so a lender can assess your qualifications.

Follow the steps below when applying for mortgage preapproval.

1. Shop Around For Different Lenders

Do some research on your own or through a mortgage specialist to find lenders that offer the products you need at rates you can afford. If you’re working with a mortgage broker, be clear with them about your financing needs so they can connect you with the right lenders and products.

Once you’ve narrowed down some options, apply online or set up a meeting with your broker or financial institution(s) to get the preapproval process started. You may want to gather the documents you’ll need for your application ahead of time to help the process go quickly and smoothly.

2. Gather The Necessary Documents

While the requirements may differ slightly from one lender to another, here’s a list of common documents and other information you can expect to provide:

Personal Identification

This documentation includes any government-issued identification, like a valid driver’s license or passport with your current address. You’ll also need to provide your age, marital status and possibly other identifying factors.

Proof Of Employment Or Income

To qualify for a mortgage preapproval, you’ll need to provide your lender with satisfactory income confirmation. If you work at a salaried or hourly full-time job and earn steady income, you may be asked for documentation such as a recent pay stub, T4 slips, tax returns or a letter of employment from your workplace.

Self-employed applicants may need to provide a notice of assessment (NOA) from the Canada Revenue Agency (CRA).

Bank Account Or Financial Statements

Lenders need to review details regarding your personal finances and assets to determine if you can afford your monthly mortgage payments. These documents can also serve as a source for your down payment funds.

You’ll likely be asked to provide statements regarding:

  • Active checking and savings accounts
  • Personal investments
  • Proceeds from sales of investments
  • Gift letters from friends or family members
  • Funds from an inheritance
  • Other accumulated savings 

3. Confirm Any Debts Or Obligations

Your eligibility for mortgage preapproval can also depend on any outstanding debts or financial obligations you have. Inform a lender or broker of any of the following obligations:

4. Apply For Mortgage Preapproval

Once all of your documents are together, submit them with your preapproval application. As we mentioned, lenders will typically perform a credit check. Your credit score can have a direct influence on your eligibility and the mortgage rates you’re offered, if preapproved.

Lenders will also review your debt service ratio (DSR), known sometimes as your debt-to-income ratio (DTI). This will tell a lender how much money you have coming in versus what goes toward your debts. You may also have to take the mortgage stress test, which demonstrates how well you could afford your mortgage if rates were to rise in the future.

Mortgage preapproval can take anywhere from a few hours up to a week, depending on the lender and the information provided.

What To Do After Getting Preapproved

Take the time to carefully review any preapproval offers you receive. 

If you’re happy with your preapproved loan amount, rate and terms, you may choose to move ahead with your home search. If the preapproved loan amount comes in lower than you’d like, you can take steps to increase your preapproval amount or apply with another lender. Finally, if you’re denied preapproval altogether, you may choose to consult a broker or individual B lenders about alternative lending options.

Your mortgage preapproval should last for 90 – 120 days, during which you should seek out a real estate agent and begin house hunting. If you get an offer on a house accepted, you can then proceed with the actual mortgage application.

What Not To Do After Mortgage Preapproval

Again, preapproval isn’t a guarantee for a mortgage. It’s possible to be denied financing if there are any big changes to your situation between when you’re preapproved and when you apply for a mortgage.

To protect your mortgage preapproval, do your best to avoid:

  • Making large purchases: Spending a large amount of cash during this time could lower your cash reserves and reduce the likelihood of getting final mortgage approval. Even if you do still get approved for a mortgage, a large purchase could impact your approved loan amount or interest rate.
  • Taking on new debt: New debt will directly affect your DSR and credit score. If you take on new debt after getting preapproved, you may jeopardize your ability to get fully approved for a mortgage. 
  • Changing jobs: Your income plays an important role in your eligibility for mortgage approval. Any changes in that category may influence a lender’s decision to offer you financing. If you’re involuntarily let go from a job, talk with your mortgage specialist about the best next steps.

The Bottom Line

Obtaining a mortgage preapproval can be a great way to know what you can afford and demonstrate your seriousness as a potential home buyer. Remember that preapproval isn’t a guarantee of financing. If something changes with your employment or your credit report, the lender may decide not to approve your application when the time comes. But if you get preapproved and make smart financial moves, you may be one step closer to homeownership.

Ready to kick off the home financing process? Get started today with Rocket Mortgage Canada, UL (Rocket Mortgage™).