When it comes to getting a mortgage preapproval there is a lot of misunderstanding with consumers.

First of all, there are generally two parts to a mortgage approval. First, there is a mortgage preapproval which comes from a lender or mortgage broker and then the second part is the firm mortgage approval which comes from the lender and the insurance company (CMHC/GE/CG – if applicable).

When you apply to your lender or mortgage broker for a mortgage preapproval they should be checking your credit history and reasonably confirming your income to give you a rough idea of what you qualify for. You need to keep in mind that the figures they are giving you are based on their own personal experience and not on any formal approval. Lenders don’t fully assess applications or documents when they are in the preapproval stage. So even though a lender or mortgage broker may tell you “yes” you qualify for a certain amount you won’t receive a definite answer in the preapproval stage.

After the preapproval stage you will be writing an offer to purchase a place and preferably this offer should be written with subjects including subject to financing. As mentioned above, a mortgage preapproval does not give you a firm approval and a lender can back out of that preapproval at any time and for any reason. Therefore subjects in your contract are very important.

It’s at this time when an offer/contact is written on a property that a lender will look at all documents including your income/down payment/contract/appraisal on the property. They will then be able to give you a firm commitment on the mortgage. Also if you have less than 20% down then you will have to get approved by an insurance company (CMHC/GE/CG). It is at this time that they will give you an approval as well. The insurance companies don’t get involved at the preapproval stage so you need to be aware that if you require their approval you will not get it until you have a contract in place.

Based on the information above you need to be fully aware that preapprovals are just a guide so that you are shopping for a home in the approximate right price range. Once you have found the home of your choice then the real work begins.

For more information on our mortgage products please visit our website at www.ymscanada.ca.