Canada's Condominium Magazine

Never too early to get pre-qualified for a mortgage

With the US housing market showing unmistakable signs of recovery, numerous commentators and writers on real estate matters in that country are giving plenty of do- and don’t-do advice to potential homebuyers who are thinking about testing the waters. One of the most useful tips for would-be homebuyers is to get pre-qualified for a mortgage. This is something that experts agree you can’t do too soon: it is never too early to get pre-qualified.
Getting pre-approval for a mortgage is an excellent way to begin the process of buying a home. Knowing exactly how much you can afford will be a great help as you look at homes.

Even if your plans for buying a home are still more dream than actual plan, going through the process of pre-approval could be a great way to get a clearer picture of where you stand financially right now, and where you need to improve. Finding out exactly how much money you can borrow for a home mortgage will help you focus when you do start your search for a home.

One of the biggest traps first-time buyers can fall into is wanting more house than they can afford. So having that piece of paper in your pocket that says $X is your limit for a mortgage could save you the disappointment of falling in love with a home you can’t afford to buy. Realtors nowadays often ask new buyers if they have been pre-qualified, and if the realtor knows what you can actually afford, as opposed to what you would like to spend, things could go more smoothly in the home-buying process. A realtor worth his or her licence won’t even show you properties they know are beyond your reach.

In going through the process of pre-qualifying, it’s important to choose a reputable lender. Avoid online sites that promise to pre-qualify you simply by having you fill in a few numbers and pressing “calculate.” Any result from that kind of process will likely be worse than useless: it could make you look gullible and unsophisticated.

Instead, deal with one of the banks. The bank that knows you best, the one where you do your daily banking, is probably the best place to start.

Here is what the bank or other lender will want to see, besides your personal information and identification papers, such as a driver’s licence.

  • A current letter of employment that states unequivocally how much you earn. If you are self-employed, you will need to show your earnings for the past two years or more, depending on the lender’s requirements.
  • Proof of all other sources of income, such as rents from other properties, investment earnings, child support or alimony payments you receive, allowances/annuities of any kind.
  • Proof of all financial assets, such as savings, investments, property, car, jewelry, valuable collections (stamps, coins, rare books or recordings).
  • Complete, up-to-date information about your liabilities, including outstanding student loans, car loans, credit card debt, or personal loans. Resist any temptation to conceal debts: they will come back and bite you. Remember that you are discussing how much money you can afford to pay each month for a home and its related costs: you do not want to get into a mortgage and then learn that you can’t afford it because you weren’t honest about your debts. You should include even expenditures that aren’t technically debts, such as regular contributions you make to charities or medical expenses.
  • Proof that you have the necessary down payment and deposit for the home. First-time buyers may not realize that a deposit of anywhere from $2,000 to $10,000 is required at the time you make an offer on a home. The down payment must be at least 5 per cent of the value of the home, however, meaning that it could be tens of thousands of dollars.
  • Proof that you have the funds to cover the closing costs. These costs include lawyer’s fees and disbursements and range from 1.5 per cent to 4 per cent of the purchase prices, according to Canada Mortgage and Housing Corporation.


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