What is a Pre-Approval

Michael Hallett • Jan 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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MICHAEL HALLETT
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The Property Matters in Mortgage Financing

By Michael Hallett • 08 May, 2024
When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.

Getting a Mortgage While on Parental Leave

By Michael Hallett • 01 May, 2024
Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.
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