4 Tips for getting a mortgage pre-approval in Canada

This article has been updated from a previous version.

The mortgage approval process can take a substantial amount of time. Before a bank, mortgage broker, or credit union can sign off on a mortgage to you, they have to do their homework. That’s why mortgage pre-approvals can go a long way in helping you prepare for purchasing a home.

Essentially, the pre-approval process allows a lender to get a lot of their paperwork out of the way immediately after you put in an offer.

The mortgage approval process can take a substantial amount of time. Prequalifying for a mortgage can help prospective homeowners avoid frustration when they’re ready to pull the trigger on their offer to purchase and lock in an advantageous interest rate for the next three to four months.

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

Related: 10 questions to ask when getting a mortgage

1. Be prepared to photocopy and scan every important document tied to your finances, debts and assets

Lenders would likely need to see at least 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

A credit score is like an adult report card on how you’ve handled various types of payments and credit. Your credit report is 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. This information goes into calculating the maximum mortgage payment you could make every month, after factoring in everything from your current debt payments to your new property taxes and maintenance costs.

The more you understand this process, 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.  

4. Know how much down payment you can afford

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 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 house price allows you to avoid the costly mortgage loan insurance that is automatically added to the purchase price when you have a smaller down payment.

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. 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.  

Shopping around for mortgage rates will also help you save money and get an idea of how much you’ll be paying in the long run.