Not all mortgage pre-approvals are created equal
As a former real estate agent who sold hundreds of homes in southern Alberta, I can say with confidence that mortgage financing is by far the biggest challenge for homebuyers. When a deal falls apart in the eleventh hour, it's usually because the buyer relied on a pre-approval that wasn't done properly.
That is, the bank employee or mortgage broker did not underwrite the application. Instead, they simply ran some back-of-napkin numbers and told the homebuyer to start shopping. This leads to disaster---and heartbreak--for both the buyer and the family who thought their home was sold.
A mortgage pre-approval is only valid if it includes these four steps...
Mortgage Discovery Session
Many mortgage brokers and banks skip this step. Yet, without it, critical details will be missed. During this conversation, the broker should ask you a lot of questions. Topics discussed should include employment history, down payment source, home ownership history, family history, your understanding of interest rates and mortgage terms, and future goals for home ownership, including the type of property you wish to buy.
Detailed Mortgage Application
You will be asked to fill out a detailed mortgage application (usually online by way of a secure portal). The mortgage application is usually filled out by the borrower and provides detailed information about employment status and income history, assets and savings, any properties owned, as well as personal information such as your name, marital status, phone number and address. The lender or broker should review this in detail to ensure there are no information gaps.
Signed Credit Consent
If you didn't sign a consent form, then your mortgage broker or bank cannot pull your credit history. Without an authorized credit bureau from Equifax or TransUnion, it's impossible to accurately assess your ability to borrow from various lenders. We cannot simply take your score from consumer facing websites such as Credit Karma or Borrowell. These are helpful to the consumer but are not detailed or accurate enough for lenders.
Document Request
If you weren't asked to provide documents to verify your income and down payment source, then you are not pre-approved. Full stop. Documents requested may include T-slips, paystubs, a job letter, bank account statements, property tax statements, and more. These are the same documents that will be necessary for a final mortgage approval on a property. Every lender requires them.
Congratulations! You're Pre-approved.
Once your mortgage broker has worked through all four of the above steps and conducted a thorough review, a pre-approval may be issued. This will include your maximum mortgage amount as well as a rate hold if interest rates are increasing.
In some instances, a borrower may not be pre-approved for their desired mortgage budget. However, this is where a skilled mortgage broker is invaluable. If you're not pre-approved, a broker can walk you through next steps such as credit repair, building more income history, saving for additional down payment, or reviewing alternative lending options.
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MMG Mortgages
113-1289 Highfield Cres SE
Calgary, AB T2G 5M2