Get help with your mortgage pre-approval process in Richmond

Pre-qualifications can be a bit of a ‘reality check.’ After receiving a preliminary answer from a lender, you may feel more confident in your ability to make a real estate purchase. Then, you can move on to the next step, which would be a pre-approval. Or, you may decide to wait until you can save for a bigger down payment, before spending your time shopping the market, which may be fruitless otherwise.

A pre-approval is, more-or-less, a clear ‘yes’ from a lender. They are saying that, barring extenuating circumstances (such as job loss, or a poor house inspection), that you will get a loan from them to buy a house.

To others, being pre-approved is an indicator that you are serious about buying a home. Real estate agents, sellers and lenders will give you more clout at open houses or during home viewings.

With a pre-approval, you’ll be able to make actual offers on a home you want to buy. This is useful if you see one that you like, and don’t want to lose time waiting for a pre-approval, in case others are also bidding.

Pre-approvals are not once-for-all

It’s important to know that pre-approvals generally have an expiry date when it comes to the interest rates that you will be guaranteed for your loan. These can last up to a few months (it depends on the lender).

Knowing this, you won’t want to apply for a pre-approval if you’re not ready to start bidding on homes. Home shopping can take a considerable time commitment on your part.

Also, applying for too many pre-approvals can affect your credit score. This in turn, can impact your future pre-approvals and interest rates. So, this is something to consider weightily.

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You are certainly welcome to call and ask questions at any time. However, ultimately, any Vancouver mortgage broker will need to collect the following, provable information from you (and your spouse), to get you concrete answers from lenders. These are:

Your credit score report

Be sure that you have validated information on your credit score report. Make attempts to correct any inaccuracies. Learn more here.

Your government-issued identity document

Bring your Canadian driver’s license or passport, to verify your identity.

Your proof of income

Have your pay stubs or Revenue Canada Notice of Assessment ready (especially if you are self-employed). You’ll also want to demonstrate how long you’ve been in your current employment situation (with exact dates, title or position, and so on).

Your debts and assets

Bring proof of any debts and assets. This includes paperwork stating that you own a vehicle, RV, or other property, for instance. It may also include statements that reveal student loan debts, outstanding lines of credit, credit card balances, child support payments, car loans, and so on.

Your monthly expenses

You should keep track of all your expenses, including your car lease payments, debt payments, household bills, spending habits, and so on. Not all of this information will be needed to get a pre-approval. However, it is good to have, so your mortgage broker can advise you on future expenses you’ll need to have ready when you purchase a home.

Your down payment amount

Finally, you should bring bank records to show you have the cash on hand to make an offer on a house, with a reasonable down payment amount.

Please note that all of the above information will need to come from official, documented sources. Getting any concrete advice on pre-approvals will not work with verbal promises, nor generalized statements by you ‘just to see.’ It may take time to sit down and seriously gather your exact information.

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A lender’s incentive to give you a loan

You can also think of this from a lender’s point of view. Banks are not handing out mortgages to ‘be nice’ or to give people a helping hand. They are trying to earn interest on your loan. So to them, this is a revenue-earning business. It would not be a wise business decision to lend large amounts of money to someone who already bears significant debt, who doesn’t pay bills on time or who does not have a consistent work history.

Your gross debt service (GDS) ratio and total debt service (TDS) ratio

To that end, lenders will also evaluate your trustworthiness to pay back a specific amount. For example, they will look at something called your gross debt service (GDS) ratio and your total debt service (TDS) ratio. This is a calculation that assumes the home you buy should not cost more than a percentage of your total income. This includes your monthly mortgage payments, utility bills, property tax, and strata fees.

However, please remember that your other expenses may also be looked at. A mortgage lender may want to see what you spend money on, outside of your home needs and debt payments (e.g. your phone bill, groceries, child care services, entertainment costs, etc.)

So, shopping for a property that is beyond your means would not be wise. You won’t qualify for any mortgage to buy any home.

Your credit score

Another important factor in qualifying for a mortgage is your credit score. In Canada, credit scores are rated between 300 to 900.

If your credit score is between 680 to 900, you will likely be considered a prime candidate for mortgage pre-qualification. You can qualify with an ‘A level’ lender.

If your credit score is between 600 to 680, you are considered to have an average credit score. You can get a loan from a ‘B level’ lender.

If you score below 600, you may still qualify for a mortgage. However, your options will be limited, and you may end up paying more in interest than someone with a higher credit score.

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There are laws about how much you must have as a down payment if you don’t plan to occupy the property yourself. In this case, you must pay at least 20% up front. If you will occupy the home yourself, you can, technically, get away with a minimum of 5% as a down payment (on a home worth less than $500K).

If you choose to buy a home worth up to $1M, then the down payment requirement will be 5% on the first $500K and 10% on the remainder.

However, if you are paying less than 20% as a down payment, you will need to purchase mortgage loan insurance. This is an extra fee to insure your mortgage, in case you default on your loan. More information on mortgage insurance can be found here. Mortgage insurance can’t be used for homes that cost more than $1 million.

You can buy mortgage insurance from one of three institutions. They are:

• Canada Mortgage and Housing Corporation (CMHC)
• Sagen™ (Formerly Genworth Canada)
• Canada Guaranty

So, how much?

In truth, the down payment you need, and the mortgage you can get, will depend a lot on your specific financial situation. A mortgage broker can help you figure out those details (it can get complicated!).

To help you with some general figures, we can say this:

To be able to buy a home in the Metro Vancouver area, most people spend roughly $100K as a down payment on a condo-style property.

Of course, this can vary a lot, depending on the home chosen, and whether or not someone decides that mortgage insurance is worth the added cost for their home’s eventual resale value (sometimes, it is!). Learn more about mortgage insurance benefits here.

Please take this as an example only. This does not mean that if you only have $60K, you can’t buy a home in Metro Vancouver. It also does not mean you can get a better deal by having more than $100K to put a down payment on a home.

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