When you’re buying a house and have less than 20% down payment, your mortgage approval has 2 steps:
- The lender’s approval
- The Insurer’s approval. (CMHC, Genworth or Canada Guaranty)
The broker and lender can do a PRE-APPROVAL, where they check your credit, crunch numbers and give an opinion of your chance of getting approved. They may ask for income confirmation upfront during this stage, you should provide it and have them review it.
A PRE-QUALIFICATION is when no credit check is done, the broker or lender is just looking at whether the income that you state you make, can support the amount of mortgage you would like. This is a BASIC review of your application, mostly of your income and other debt to see if you can afford a mortgage payment. It’s good for people who may be purchasing in the future. I do not recommend this if you are actively looking and planning to buy soon.
The Insurer (CMHC, Genworth, Canada Guaranty) does NOT do pre-approvals – this is because they are approving you AND the house you’ve bought. They can’t approve the house, unless you have an accepted offer. They reserve the right to “like the house”, and basically want to make sure you haven’t bought a shack that’s about to fall over. Make sense?
So, you may have a Pre-Approval but until you have bought the house, and the Insurer has reviewed the offer and the house, you DO NOT have an approval.
Once the insurer has reviewed your accepted offer and the house, they will issue a CONDITIONAL APPROVAL.
All approvals, every single one, is CONDITIONAL.
This means: They will actually GIVE you the money once you meet the all the conditions outlined in the mortgage commitment (the approval on paper).
Conditions are ALWAYS:
- Proving that your income is what you said it was.
- Proving where your down payment came from.
- There may be other conditions such as selling your current home, paying off other debt etc.
- Whatever the conditions are: Know them and meet them in a timely fashion. Why? Because actually GETTING the money to pay for the house you just bought, depends on you doing this.
A few words about paperwork… once you’re approved, the lender has agreed to give you a whole wack of money $$$$$.
So… they have the right to ask you for paperwork, things like: employment letters, recent pay stubs, T4’s, tax returns, separation agreements, the list goes on and on. It’s nothing personal, it’s just the reality of getting a mortgage today. Family, friends, co-workers, neighbours, your dry cleaner and your cable guy will tell you that they didn’t have to do this when they got a mortgage. Tell them that’s because
the magical unicorn mortgage days are over. Just like the yellow pages, times have changed.
- Our government says so and they regulate mortgages.
- That saying about a few bad apples spoil it for everyone applies to mortgages as well. If there is a rule, it’s a rule for a reason! You can vent to your broker, that’s ok! But in the end, working together to get things done is what’s going to get your money funded on your closing date. As I always say, hustle now and we can complain together later.
The Home Buying process can be stressful, not going to lie. The more educated and prepared you are, the better! Work with an experienced broker who will be blunt and protect you.
And most of all, keep a sense of humour! Life is too short, make boring stuff fun!