October 5, 2021

Hassan Amhaz – BDM & Mortgage Professional

As brokers, we have individuals approach us on a regular basis looking to secure a pre-approval. We are happy to provide them with a pre-approval but always tell them the same thing: a pre-approval does not mean you will be guaranteed a mortgage approval! A pre-approval is essentially a soft approval and rate-hold, wherein the lender will indicate that you may qualify for a certain amount and that you will secure a current interest rate for a certain period of time (usually 3-4 months maximum).

You may be asking yourself: why is my pre-approval not a valid determination of what my mortgage approval will be? Well, there are several factors (which will be discussed below) related to the borrower and the property, which affect the mortgage approval.

Pre-Approval Process

When you are seeking a pre-approval, the objective is to find out what the maximum mortgage amount you may be approved for is, what property purchase prices you could aim for, and to secure an interest rate. The requirements for a pre-approval are almost exactly the same as a mortgage approval. We will need you to fill out an application, submit all necessary documents, and we will pull your credit file. This will allow us to analyze your credit-worthiness and borrowing capacity. Once we have completely underwritten your file, we will secure a market low interest rate for you for up to 3-4 months. If rates increase by the time you are ready to purchase, you will still have access to the rate we secured through your pre-approval. If they decrease, then of course we will secure you the lower rate!

It is important to note that for an approval, the lender needs to fully re-assess both your file and the property you have chosen to purchase at the time of your application. Also, keep in mind that when you are purchasing a property with less than 20% down payment, mortgage default insurance is required through one of the insurers in Canada: CMHC, Sagen, or Canada Guaranty. When securing a mortgage approval, both the lender AND insurer must approve your file. The insurer is NOT involved in the pre-approval process whatsoever; they will need to make a full assessment of your file and the purchase property. However there are ways that we may be able to pre-screen with the insurer. This is why it is best to consult with a mortgage specialist.

Securing a Mortgage Approval

Once you are ready to purchase a property, we will have to do a full mortgage approval based on the property you have chosen. The lender will need updated documents and willfully underwrite your file based on the updated documents and the property. Regardless of the pre-approval, you have in hand, there are things that could affect your qualification. Let’s dive in and explore what some of these factors are:

Changes with Your Personal Circumstances

• Income and Employment Changes
  • Example: At the time of your pre-approval you were working a salaried position as a Customer Service Manager at Canadian Tire, but have since started your own event planning business. Now that you are self-employed, your income qualification requirements have changed and Prime lenders require at least two years of business operation.
• Liabilities
  • If you started financing a new vehicle, took out a loan, etc…, this will affect your maximum mortgage approval amount
• Credit
  • Your credit pull is only valid for 30 days. Depending on your timeline, another credit pull may be required
  • Your credit score might have decreased since your pre-approval below the minimum credit score threshold required for an approval (due to missed payments on bills for example)
  • Insurers need to review your file come approval time. They may not be satisfied with your credit profile and decline your file

Property Factors

There are several reasons why lenders may choose not to lend on a property, such as:

• Type
  • Leased Land: Some lenders will not approve a mortgage on a property being purchased on leased land or will only finance up to a certain percentage of the purchase price
  • Grow Ops: The majority of lenders will not lend on a property that was previously a grow-op or drug lab
  • Lenders are very selective on Mobile & Modular Homes
• Condition
  • The property has structural damage or other issues
  • The age and remaining economic life of the property
• Location
  • Lenders have a list of what geographic regions they will lend to
  • Rural properties with certain attributes may find it difficult to secure financing
• Value
  • In today’s market, there are multiple bids being placed on properties for sale, driving up the price of the property. You may have thought that $1,000,000 would be enough to purchase a home that meets your criteria. Yet these homes are selling for no less than $1,200,000. You would now have to qualify for a mortgage based on that purchase price, or change your property criteria
  • Now, let’s take a look at a scenario in which you outbid all other buyers for a property with an offer of $1,200,000. If the appraisal of the property comes back at a value of $1,000,000, the lender will only lend you 80% of the appraised value. This means you would have to come up with the funds to finance the difference!

The Conclusion

The Conclusion

Make sure that you understand what your mortgage pre-approval is and how far it can go for you. In today’s red hot market, it is worth speaking to us about the property you would like to purchase before making an offer. We will be able to look into the property for you, and explore if it fits with your application or not.

Feel free to call or text me directly at (778) 861-6462 if you have any questions about the pre-approval/approval processes, or if you would like to know more about what solutions you qualify for. Follow us on social media for the latest updates and tips!