Toronto Mortgage Pre-Approval Process: Your Ultimate Guide

Toronto is the most expensive city in Canada, and you can’t just go, choose a property and buy it unless you’re pretty rich. Getting pre-approved for a mortgage paves the way to becoming a homeowner. Toronto mortgage pre-approval process is comprised of five main steps. We’ll walk you through these steps to help you stop worrying about getting pre-approved.

What Is a Mortgage Pre-Approval, and Why Do You Need One?

As the name suggests, mortgage pre-approval is a process that determines whether you can get approved for a mortgage. It indicates the maximum amount you can receive as well as the interest rate, and it’s usually valid for 2 to 4 months, depending on the lender. Getting pre-approved isn’t mandatory, but it’s an essential step if you don’t have ample savings and remarkable financial records.

You need to go through the pre-approval process to understand your spending power and filter your search for affordable homes. Another reason is to show the lender that you’re serious about buying a home and that you're willing to disclose your financial records to that end.

Why Is Pre-Approval Essential in Toronto's Competitive Housing Market?

The real estate market in Toronto is pretty competitive, and homes are sold within a couple of days and even hours of being listed. Pre-approval speeds up the purchasing process as sellers prefer to sell their homes to pre-approved buyers. Moreover, getting pre-approved locks in the interest rates and preserves your purchasing power in case the rates increase while you’re looking for a home.

Steps to Get Pre-Approved for a Mortgage in Canada

You need to take five steps to get mortgage preapproval in Canada. Through these steps, the lender determines how much they can lend you and defines the terms of repaying the mortgage.

Step 1: Assess Your Financial Situation and Credit Score

Lenders don’t process your pre-approval application unless they ensure you’re able to repay the mortgage. For that, they will assess your monthly income, debts, and other expenses. If your financial records add up, they will proceed with the pre-approval process.

In addition, most lenders demand a credit score of 680 or higher to grant you the mortgage. They may accept lower credit scores, but they will increase the interest rate or the amount of down payment instead.

Step 2: Gather the Necessary Documents for Mortgage Pre-Approval

In order to assess your financial situation, mortgage lenders demand some documentation. The required documentation may vary based on your preferred lender, but it generally consists of the following:

• Personal identification: A government-issued document, such as a driver’s license.
• Proof of downpayment: bank statement revealing your savings for downpayment and closing costs.
• Proof of income: pay stubs or notice of assessment (if self-assessed).
• Employment verification: how long you have worked with the employer.
• Credit information: your credit report and credit score.
• Debt information: existing loans, lines of credit, and credit cards.

Step 3: Choose Between a Bank or Mortgage Broker

You can choose to borrow the mortgage from prime or alternative lenders based on your financial qualifications. Prime lenders are Canada’s major banks, commonly referred to as A-lenders. Prime lenders have stricter mortgage policies and require at least a credit score of above 680 (preferably 700). A-lenders offer competitive interest rates, but you have to go through the burden of comparing and contrasting the lenders to see which one offers more favorable terms.

Alternative lenders, AKA B-lenders, consist of mortgage brokers and private lenders. Mortgage brokers act like an intermediary between you and the lenders. They can save you from the effort of comparing lenders and choosing the best one. Overall, mortgage brokers offer more flexible terms, but getting a mortgage from them comes with higher interest rates. Click on mortgage broker vs bank for more details.

Step 4: Submit Your Pre-Approval Application

The next step is to fill out the pre-approval application form. You need the abovementioned documentation to have the information needed to complete the form. The important thing here is to fill in the exact information, as any inconsistencies can delay the pre-approval.

The lender reviews your credit report and authenticates the documents and the application form, and your application will be submitted if everything checks out.

Step 5: Review and Understand Your Pre-Approval Letter

Once the lender confirms your application, they issue a pre-approval letter. If all the required documents are ready and flawless, you’ll get the pre-approval letter within 24-48 hours. This is where the process of getting pre approval for mortgage ends.

The letter contains information about the mortgage amount, interest rate, and the terms and conditions of getting the mortgage. Make sure to review the terms and the locked-in interest rate. You can use the guidelines of the letter to look for a home that is below the mortgage amount.

Common Mistakes to Avoid During the Pre-Approval Process

It’s not hard to prequalify for a home mortgage in Canada, but you should watch out for the following mistakes that can delay or even jeopardize your mortgage pre approval.

• Using the entire mortgage money on buying the home and not saving for maintenance costs, insurance, and taxes.
• Not factoring in the closing costs
• Leaving the home purchase to the last days left to pre-approval expiration.
• Applying for other types of credit or loan before or during pre-approval.
• Oversight in providing the required documentation and financial details.

What Comes After the Pre-Approval?

The exciting part comes after going through the paperwork; you can confidently start looking for an affordable home. You can either do this yourself or get help from a professional real estate agent if you can’t afford the time or you want expert advice.

Then, you should make an offer and negotiate with the seller. You need to provide the lender with information about the chosen property and final purchase agreement to get the final mortgage approval.

FAQs

How long does mortgage pre-approval take in Canada?

Getting pre-approved doesn’t take long if the required documentation is ready. You may even get the pre-approval letter within a couple of hours. However, if your financial situation is complex (e.g., low credit score or unstable income), it can take more time, even weeks.

How many days before closing do you get mortgage approval in Canada?

You will get the final mortgage approval 1-2 weeks before the closing date, depending on how quickly the lender confirms the conditions.

Is it better to be preapproved or prequalified?

Pre-qualification is based on basic financial information and is rather informal. Contrarily, getting pre-approved is based on valid documents and financial data, and it’s accepted by lenders. Therefore, getting pre-approved is better.

Are you guaranteed a mortgage with a pre-approval?

No. Getting pre-approved does not guarantee getting the mortgage. Its purpose is to determine the maximum mortgage you can get and lock in the interest rate until the expiry date.

Can I get pre-approved with two different banks?

Yes, there is no law against getting pre-approved from different banks or mortgage brokers as long as you are transparent about your financial situation and there are no mismatches in the details.

Conclusion

Getting pre-approved for a mortgage in Canada is not mandatory, but it accelerates the process of buying a house. The process consists of five main steps, and when you take them, you will receive a pre-approval letter containing information about the maximum mortgage you can get and the locked-in interest rate. You can use the letter guideline to make a wise purchase. Happy home buying!