Thinking of buying a property? You must first find out how much you can actually afford to pay for this important purchase. Your financial institution (or lender) must take many factors into consideration when determining how much you can afford to lend. By applying for a mortgage pre-qualification before you start looking for a home, you can avoid falling in love with a home that is priced beyond your financial capabilities.

What is mortgage pre-qualification?

 A pre-qualification is an estimate of your borrowing capacity to finance the purchase of a property. Your mortgage broker (or your financial institution) makes a preliminary evaluation of your economic situation. This way, a pre-qualification allows you to save time and increase your ability to negotiate. You will avoid disillusionment and you will buy your property with confidence.

The modus operandi of a mortgage pre-qualification

Your institution (or broker) will first perform a preliminary assessment of your financial capacity to determine the amount they are likely to agree to grant you. In addition to obtaining it fairly quickly, a pre-qualification is usually cost-free and has no impact on your credit rating.

Please keep in mind that a pre-qualification is only a rough indication that your mortgage application may be approved. It does not constitute a guarantee of financing or a loan approval. In order to be approved, you will need to submit additional information and documentation that meets your lender's standards.

Pre-qualification versus pre-authorization

A pre-qualification should not be confused with a mortgage pre-approval. A pre-approval is a potential commitment from your financial institution to provide you with a specific amount of money based on your financial capacity at that specific time.

Note that your pre-approval amount is likely to be the maximum amount you will receive. However, a pre-approval does not guarantee that you will receive a mortgage for the amount you were pre-qualified for. The authorized mortgage loan is based primarily on the value of the property you are interested in and the amount of your down payment. Also, you should know that the mortgage rate offered during the pre-approval period is only guaranteed for a specific period of time, varying between 90 and 120 days.

The "who does what" of a mortgage pre-approval

Mortgage lenders and brokers are the ones who can get you pre-approved. Mortgage lenders are grouped around banks, credit unions, caisses populaires, mortgage companies, insurance companies, trust companies and loan companies.

Mortgage brokers do not lend money directly. They arrange the transactions by finding you a lender. Some lenders offer their products only to borrowers and some mortgage products are only available through brokers. Brokers have access to many lenders. This means they can offer a wider range of products.

During the mortgage pre-approval process, the most requested documents are related to identity, employment verification, proof of income, proof of assets and credit score.

Obviously, to make things easier for you, a mortgage broker is the right person to guide you through this financial maze. With their support and advice, you can move forward with peace of mind towards the most important purchase of your life!