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.