Mortgage pre-approval모기지 사전 승인

What is it?

A mortgage pre-approval is a written note from a lender, given before you choose a home, that says roughly how much it expects to lend you and at what rate, based on your income, debts, credit history and down payment.

It tells you your budget before you start viewing homes, and it tells sellers that you are likely to get financing.

One thing you must know: a pre-approval is not a promise to lend. Once you have a home under contract, the lender appraises that home and reviews your file again before it issues the final approval (the commitment).

What a pre-approval does and does not do

How it works in Ontario

FSRA (Ontario’s financial regulator) says clearly that a pre-approval only means the lender is interested in offering you a mortgage. It is not a guarantee of a contract, and the lender may decide not to lend after it looks closely at you or the property.

Final approval comes as a commitment letter (also called an approval letter). FSRA says that once signed, it is a formal, binding contract with the lender. So the order is: pre-approval, then an accepted offer, then appraisal and full underwriting, then the commitment letter, then closing.

Federally regulated lenders such as banks must follow OSFI’s Guideline B-20. It expects them to verify income with an independent source, keep documents showing where the down payment came from, and have a sound appraisal process. That is why what you show at pre-approval gets checked again at final approval.

How long does it last?

No law sets the period. A rate hold of about 90 to 120 days is typical, but it varies by lender, so check the date on your pre-approval letter.

If you have not found a home by then, you can apply again to extend it. If rates have changed in the meantime, the new rate may apply.

Documents you will need

• Government photo ID.
• Proof of income: for employees, recent pay stubs, a job letter, last year’s T4 and notice of assessment (NOA, the letter the Canada Revenue Agency sends you after you file your taxes). Self-employed buyers usually need two years of tax returns and business documents.
• Proof of down payment: usually about 90 days of account statements. For gifted money, a gift letter saying it does not have to be repaid. OSFI’s guideline tells lenders to get a letter confirming a gift has no recourse.
• Debts and fixed costs: balances and monthly payments on car loans, student loans, credit cards and other loans.
• Consent to a credit check. The lender pulls your credit report. OSFI’s guideline says lenders should not rely on the credit score alone but look at the whole history.

The exact list differs by lender. Ask your lender or mortgage broker for their list before you apply.

Pre-approval vs pre-qualification

A pre-qualification is a rough estimate of what you could borrow, based on the income and debts you state. It is often done without documents or a credit check, so the number can be wrong.

A pre-approval is the lender’s real review after you submit documents and it checks your credit. A rate hold usually comes only with a pre-approval. Before you start viewing homes, get a pre-approval, not just a pre-qualification.

Some lenders use the two words loosely. Just ask: did you check my documents, did you pull my credit, is a rate held, and until what date?

Why get one before you offer?

• You shop with a real budget. Because of the stress test, you may be able to borrow less than you expect. Insured mortgages (less than 20% down), and uninsured ones from federally regulated lenders such as banks, are tested at the greater of your contract rate plus 2% or 5.25%.
• It helps you decide how short a financing condition you can accept in a competing offer. But even with a pre-approval, dropping the financing condition is risky: a low appraisal or a problem in underwriting can mean no money on closing.
• When rates are rising, the held rate protects you.
• Your documents are ready, so final approval takes less time. That makes it easier to meet the financing deadline in a conditional offer, which is often only a few days.

What to watch out for

• Do not take on new debt after the pre-approval. A car loan, a new credit card or a big purchase can cut the amount you qualify for at final approval.
• Tell the lender right away if you change jobs or your income type changes (for example from salaried to contract or self-employed).
• The pre-approved amount is not the same as what you can comfortably afford. Add property tax, condo fees, utilities and living costs and check what you can really pay each month.
• Never put false information on the application. FSRA says that misstating facts or providing false documents in a mortgage application is illegal and can have serious consequences.

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