4 Tips for getting a mortgage pre-approval

By: Kyle Prevost on September 1, 2016
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Mortgage pre-approvals are a great way to prepare for purchasing a home. Essentially, what a lender is trying to do with the pre-approval process is get a lot of their paperwork out of the way before you find the house of your dreams and want to immediately put in an offer. Before a bank, mortgage broker, or credit union can sign off on releasing your mortgage money to you, they have to do their homework.

The mortgage approval process can take a substantial amount of time, so you may want to take care of things before you start house hunting in order to avoid frustration when you want to pull the trigger on your offer to purchase. Pre-approvals are also a great way to lock in an advantageous interest rate for next three to four months. Best of all, you are not committed to choosing with a specific lender in any way just because you received a pre-approval from them.  

If you decide getting a mortgage pre-approval makes sense for you, here are four ways to speed the process along:

1. Be prepared to photocopy and scan every important piece of paper that might be loosely tied to you in any way

I’m only slightly exaggerating here. Lenders might like to see (but are not limited to asking for) the following items as you are getting a mortgage:

  • Several types of identification.

  • Proof of income, including pay stubs, a letter from your employer, and/or a notice of assessment (tax documents). If you happen to be self-employed, be prepared for the fine-tooth comb to come out as the lender tries to establish your income.

  • Your current mortgage or rental documentation.

  • Proof of other large assets such as vehicles or secondary properties that the lender uses to try to establish your net worth.

  • Recent financial statements from all your bank accounts.

  • Statements of any debt you might have including credit cards, student loans, car payments, and other loans.

  • Documentation showing any long-term legal financial commitments such as child or spousal support payments.

2. Build a solid credit score

Check out these articles for more details on what exactly goes into a credit score and how you can improve yours. Ultimately, your credit score is like an adult report card on how you’ve handled various types of payments and credit. Your credit report is going to be important to the folks looking to lend you a large amount of money for a home purchase. The higher the credit score, the more quickly and efficiently you’re likely to be approved (aim for 700+ in an ideal world).

3. Become familiar with your Gross Debt Service Ratio (GDSR) and your Total Debt Service Ratio (TDSR)

Your lender wants to know how much debt you have versus how much income you make. The lender takes this information and figures out what the maximum mortgage payment you could make every month, after calculating in everything from your current debt payments to your new property taxes and maintenance costs.

The more you understand about these calculations the better off you will be in determining just how much house you can actually afford (hint: it’s probably less than your lender is willing to give you). Your mortgage pre-approval can help you “prove” your seriousness to sellers, and it provides a realistic idea of what to expect. Doing a bit of reading around your debt ratios can make other pre-approval terminology easier to understand as well.

4. Know how much down payment you can kick in

If you’re not even sure how much money you can afford to “put down” on a house, the lender might have more than a few questions. You need to have at least 5% of the house’s price ready to hand over before you can get a mortgage for the other 95%. It is also important to note that having over 20% of the agreed upon price allows you to avoid costly CMHC insurance that automatically adds to your purchase price if you have to pay it. Having less than a 20% down payment also makes you a bigger risk to the lender, so saving up as much as possible can really help speed along a mortgage pre-approval.

Before you begin house hunting, get an idea of where you stand by getting a mortgage pre-approval.

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