What is a Pre-Approval

Michael Hallett • Jan 24, 2019
Answer: When the borrower provides every single document (see list below) upfront to be reviewed to prove income/employment, creditworthiness and down payment amount.

Question: What is a PRE-APPROVAL?

The term PRE-APPROVAL is thrown-about and used so loosely that nobody really knows what it means. It is quite common for borrowers to walk away from a lender appointment thinking they are guaranteed financing once they find a home to purchase, it’s often not the case.

I really wish we could delete the word from the English language. Most of the time we only hear what we want to hear. Lender speaking to client 1, “…you’re pre-approved…,” client 1 speaking to spouse, “…we’re approved…” and me/broker thinking, “…I sure hope all the documents were requested and reviewed…”

Since the word is out there being used freely let’s look at what it really means.

PRE = is prior to; before; preparatory; or in advance. APPROVED = officially agreed or accepted as satisfactory. APPROVAL = the belief that someone or something is good or acceptable.

Based on the definition (for the purpose of using this term in the mortgage industry), a PRE-APPROVAL is the act of providing a client(s) with guaranteed financing before completing all fours parts of a mortgage application. The fourth and finally part of the mortgage application is knowing or finding the SUBJECT PROPERTY. This is what I consider to be the x-factor. The sole discretion of approving the subject property is in the hands of the lender and potentially the insurer (if mortgage insurance is required). Review of the property doesn’t not happen until an accepted often is presented to the lender.

Is the property marketable or not? This can only be answered through proper due diligence while utilizing various tools at their disposal.

Every document we provide serves a specific purpose to complete the puzzle that we refer to as risk management. The lender needs to assess the probability that the borrower can meet the terms of the mortgage contract.

My process is quite simple, ask for 100% of the documents upfront. Upon full review it will be obvious if the file is approvable or not. Here is a list of documents that will be required if the broker/lender is conducting a proper pre-approval:

For employees:

  • Letter of employment dated within the last 30 days
  • Most current paystub
  • 2016 and 2017 NOA (Notice of Assessment)
  • 2016 and 2017 T4s

For Business-For-Self:

  • T1 Generals and Stmt of Business Activities
  • 2016 and 2017 NOA (Notice of Assessment)
  • Business financials (if incorporated)
  • Articles of Incorporation

If there are other properties in the portfolio:

  • Mortgage stmt
  • Property tax notice and confirmation the taxes are paid
  • Rental agreement
  • Strata documents

Purchase:

  • Purchase contract & all addendums
  • Subject removal
  • MLS
  • PDS
  • Strata docs – AGM, monthly mins, Engineers & Depreciation Report
  • Confirmation of your down payment with a 90-day history

Other:

  • BC Driver’s License or passport

If you have not been asked to supply these supporting documents upfront, then that broker/lender is setting you up for failure.

If you do not provide the requested documents, then you are setting yourself up for failure.

IMPORTANT PUBLIC SERVICE ANNOUNCEMENT…there is no such thing as a 60 Second Pre-Approval. Our society is falling victim to instant gratification and marketing gurus are aware of this fact. Some of Canada’s ‘big banks’ have tapped into those desires. There is advertising in the marketplace claiming a pre-approval can be completed in 60 seconds.

My online application takes a minimum of five minutes to fill out. Pulling one’s credit takes another minute, heck it can take the client a minimum of one hour (likely more) to compile and send all the supporting documents. Don’t fall for it, it is a false statement.

If none of the above steps were taken, then you have what we call a rate hold. This simply secures an interest rate up to 120 days.

If you have any questions about this topic or anything else, please do not hesitate to call, text (604-616-2266) or email (michael@hallettmortgage.com) me at anytime.

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MICHAEL HALLETT
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Protect Yourself at Renewal

By Michael Hallett • 15 May, 2024
It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!

The Property Matters in Mortgage Financing

By Michael Hallett • 08 May, 2024
When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.
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