What is a Pre-Approval
Michael Hallett • January 24, 2019
Answer: When the borrower provides every single document (see list below) upfront to be reviewed to prove income/employment, creditworthiness and down payment amount.
Question: What is a PRE-APPROVAL?
The term PRE-APPROVAL is thrown-about and used so loosely that nobody really knows what it means. It is quite common for borrowers to walk away from a lender appointment thinking they are guaranteed financing once they find a home to purchase, it’s often not the case.
I really wish we could delete the word from the English language. Most of the time we only hear what we want to hear. Lender speaking to client 1, “…you’re pre-approved…,” client 1 speaking to spouse, “…we’re approved…” and me/broker thinking, “…I sure hope all the documents were requested and reviewed…”
Since the word is out there being used freely let’s look at what it really means.
PRE
= is prior to; before; preparatory; or in advance. APPROVED
= officially agreed or accepted as satisfactory. APPROVAL
= the belief that someone or something is good or acceptable.
Based on the definition (for the purpose of using this term in the mortgage industry), a PRE-APPROVAL is the act of providing a client(s) with guaranteed financing before completing all fours parts of a mortgage application. The fourth and finally part of the mortgage application is knowing or finding the SUBJECT PROPERTY. This is what I consider to be the x-factor. The sole discretion of approving the subject property is in the hands of the lender and potentially the insurer (if mortgage insurance is required). Review of the property doesn’t not happen until an accepted often is presented to the lender.
Is the property marketable or not? This can only be answered through proper due diligence while utilizing various tools at their disposal.
Every document we provide serves a specific purpose to complete the puzzle that we refer to as risk management. The lender needs to assess the probability that the borrower can meet the terms of the mortgage contract.
My process is quite simple, ask for 100% of the documents upfront. Upon full review it will be obvious if the file is approvable or not. Here is a list of documents that will be required if the broker/lender is conducting a proper pre-approval:
For employees:
- Letter of employment dated within the last 30 days
- Most current paystub
- 2016 and 2017 NOA (Notice of Assessment)
- 2016 and 2017 T4s
For Business-For-Self:
- T1 Generals and Stmt of Business Activities
- 2016 and 2017 NOA (Notice of Assessment)
- Business financials (if incorporated)
- Articles of Incorporation
If there are other properties in the portfolio:
- Mortgage stmt
- Property tax notice and confirmation the taxes are paid
- Rental agreement
- Strata documents
Purchase:
- Purchase contract & all addendums
- Subject removal
- MLS
- PDS
- Strata docs – AGM, monthly mins, Engineers & Depreciation Report
- Confirmation of your down payment with a 90-day history
Other:
- BC Driver’s License or passport
If you have not been asked to supply these supporting documents upfront, then that broker/lender is setting you up for failure.
If you do not provide the requested documents, then you are setting yourself up for failure.
IMPORTANT PUBLIC SERVICE ANNOUNCEMENT…there is no such thing as a 60 Second Pre-Approval. Our society is falling victim to instant gratification and marketing gurus are aware of this fact. Some of Canada’s ‘big banks’ have tapped into those desires. There is advertising in the marketplace claiming a pre-approval can be completed in 60 seconds.
My online application takes a minimum of five minutes to fill out. Pulling one’s credit takes another minute, heck it can take the client a minimum of one hour (likely more) to compile and send all the supporting documents. Don’t fall for it, it is a false statement.
If none of the above steps were taken, then you have what we call a rate hold. This simply secures an interest rate up to 120 days.
If you have any questions about this topic or anything else, please do not hesitate to call, text (604-616-2266) or email (michael@hallettmortgage.com) me at anytime.
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One of the most common questions, “how long does it take to get pre-qualified?” My response, “how fast can you provide the information I need.”
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Buying a home is one of the biggest financial commitments you’ll ever make. That’s why lenders want to be sure you can handle your mortgage payments—not just today, but also if interest rates rise in the future. This is where the mortgage stress test comes in. Many Canadians hear the term but aren’t entirely sure what it means or how it affects them. Let’s break it down in plain language. What Is the Mortgage Stress Test? The stress test is a rule introduced by the federal government that requires all mortgage applicants to qualify at a higher rate than the one they’ll actually pay. Currently, you must qualify at the greater of your contract rate + 2% or the benchmark qualifying rate (set by the Office of the Superintendent of Financial Institutions). For example: If your lender offers you a 5-year fixed mortgage at 5.25%, you must show you could still afford the payments at 7.25% . Even if rates don’t rise that high, the stress test ensures you won’t be overextended if they do. Why Does It Matter? The stress test protects both borrowers and lenders by: Preventing over-borrowing : It ensures you don’t take on more debt than you can realistically handle. Preparing for rate hikes : With interest rates fluctuating, it’s a safeguard against sudden increases. Strengthening financial stability : It lowers the risk of defaults, protecting the housing market as a whole. While it can sometimes feel like a barrier—reducing the amount you qualify for—it’s ultimately designed to keep you from becoming “house poor.” How Does It Impact Buyers? The stress test can significantly affect your homebuying budget. For example, without it, you might qualify for a $600,000 mortgage, but with the stress test applied, you may only qualify for $500,000. That doesn’t mean your dream of homeownership is out of reach—it just means you may need to adjust expectations or explore other strategies, such as: Increasing your down payment Paying down existing debts Considering alternative lenders who may have different qualification standards Why Work With a Mortgage Professional? Every lender applies the stress test, but not every lender views your application the same way. An independent mortgage professional can: Shop multiple lenders to find the best fit Run affordability scenarios at different rates Help you understand how much house you can truly afford—without stretching your finances too thin The Bottom Line The mortgage stress test isn’t meant to stop you from buying a home—it’s there to protect you from financial strain down the road. By understanding how it works and planning ahead, you can make smarter choices and buy with confidence. If you’re thinking about purchasing a home, refinancing, or simply want to know how the stress test affects your options, connect with us today. We’ll help you stress-test your budget and find the mortgage solution that works best for you.
The Bank of Canada announced today that it is maintaining its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. For Canadian homeowners, buyers, and anyone with a mortgage on the horizon — here's what you need to know.
