Mortgage pre-approval dos and don’ts

Before becoming a new homeowner, it can be easy to get caught up in the shopping experience. But you’re not just looking for a home in a charming neighbourhood. You’re also shopping for a great mortgage rate and your first step should be seeking a mortgage pre-approval.

Do apply before house hunting: The homebuying process shouldn’t start with contacting a realtor. First, apply for a mortgage pre-approval. You don’t want to find your dream home and then get tripped up, so being pre-approved will ensure you’re ready to make a move.

Do shop around: The best mortgage rate may not be waiting for you at your local bank branch. Compare mortgage rates or use a mortgage broker who will negotiate for you. A small fraction in your rate can make a huge difference to your payments and interest.

Do ask questions: For how long is your pre-approved rate guaranteed? Can it be extended? What happens if you find a home that costs a little more than the amount you’re pre-approved for? Ask your broker or lender all of this.

Do check your credit: Any lender will check your credit before approving your mortgage so don’t be caught off guard. A poor credit score could put you at a multitude of disadvantages, from higher rates to being denied a mortgage loan.

Do assemble your documentation in advance: You might be surprised by how much paperwork is required for a mortgage approval. Ask your mortgage broker for a list of what you’ll need and keep it all in one place.

Here’s a preliminary list documents are required:

• Identification
• Bank and investment statements to prove you have adequate funds
• Proof of steady income (pay stubs or a letter from your employer indicating how long you’ve been with the company) or a notice of assessment from the Canada Revenue Agency if you’re self-employed
• Documentation indicating other assets (real estate, cars, investments)
• Disclosures of other debt like student loans, lines of credit or expenses you regularly owe, such as child support

Do read the fine print: Yes, all of it. Once pre-approved, you’ll receive documents outlining your interest rate, mortgage amounts and the terms of the loan. This could be the biggest loan you ever need, so don’t leave anything unread.

Don’t ignore your budget: Calculate whether you can afford property by thinking about costs on a monthly basis. Expenses go beyond your mortgage payment: Think property taxes, condo fees, utilities and apply for an amount that reflects a property within your price range.

Don’t buy a big ticket item: Once you’ve gone through the trouble of laying out your financial situation to your loan officer, don’t go changing it. It’s not the time to apply for a new credit card or agree to co-sign on a lease. You could end up jeopardizing your chances for pre-approval.

Don’t quit your job: Now is not the time to make the jump to entrepreneurship. Having a predictable income in essential to getting pre-approved, so quitting or changing jobs can ruin your plans.

Don’t leave town: Your mortgage broker may need clarification about your documentation. It’s best not to leave for a vacation when you’re trying to lock down such a big decision. If leaving your home base is unavoidable, make sure you tell your broker