April 19, 2024

Business Bib

Business & Finance Blog

Mortgage Pre-Approval In Canada

2 min read

As you look for a suitable house on the market, you want to save as much time and effort as possible. One process that will help make buying a house much more convenient is getting a pre-approval. It will help you figure out a budget by giving you an idea of where you stand in terms of affordability.

What is a Mortgage Pre-Approval Exactly?

Mortgage pre-approval is a process through which you can find out three basic things:

  1. The maximum price you can afford
  2. The rate of mortgage in the first term
  3. How much monthly payments you need to make according to the price

The best thing about mortgage pre-approval in Canada is that the application is free. Additionally, you can obtain a pre-approval without having to bind yourself to one lender.

Once your mortgage has become pre-approved then the lender will not be able to change the rate of the mortgage for the first 120 o 160 days. This means that you are protected from rapidly rising rates of interests all the while benefitting from lower rates at the same time.

What does the process look like?

Once you have decided to go through this route, you will have to meet the lender in person. They will ask you a series of questions regarding the following:

  • Your Credit Score

Credit score is something that lets lenders know just how risky giving you a loan would be. It determines your financial health; whether you have paid all your debts in time. A healthy credit score lies in between 700 to 900 –it will give you access to major lenders like banks.

  • Your Down Payment

A down payment will be the amount of money that you give in order to buy your house. You down payment must cover at least 5 percent of the price of the home in Canada. However, for everyone who makes a down payment of less than 20 percent of the value of their home, they would have to get mortgage default insurance for the protection of the lender.

  • Your Debt Service Ratios

This ratio is used to calculate the amount of monthly payments you can make after taking into consideration your income, expenses and any debt that you may have to give. It gives the lender a better idea of where you stand financially.

  • The Supporting Documents

Besides the questions you will have to answer and providing financial records, you will need the following documents as well although they may vary depending on the lender:

  • Identification Documents
  • Employment contract for proof of income
  • Bank statements
  • A list of all assets, liquid or otherwise
  • List of debts you owe like tuition loans, leases or credit card bills

For mortgage related news, articles and freebies visit https://askross.ca/second-mortgages-toronto-and-gta/