Mortgage pre -approval
Here is a complete article on mortgage pre-approval, written for a Quebec audience.
Mortgage pre-approval: the first reflex before shopping for a house
Even before falling in love with a property on Centris, the first strategic step is the mortgage pre-approval. It’s the moment when the bank (or the mortgage broker) essentially tells you:
« Here is how much you can borrow, here is the rate, and here are the conditions. »
Without this step, you’re shopping a bit “in the dark,” with a real risk of disappointment… or financial surprises.
1. What is a mortgage pre-approval?
A mortgage pre-approval is a formal evaluation of your borrowing capacity, based on:
- Your income
- Your debts and financial commitments
- Your down payment
- Your credit file
- The type of loan and the desired term
The lender then gives you:
- An approximate maximum amount you can borrow
- An estimate of your monthly payments
- Often, a guaranteed interest rate for a fixed period (e.g., 90 to 120 days)
This isn’t an absolute financing guarantee, but it’s a solid base to shop.
2. Why obtain a pre-approval BEFORE looking for a house?
a) Know exactly which price range to shop in
Rather than looking at houses at $600,000 “just in case,” you get a realistic price range based on:
- The maximum purchase price
- The available down payment
- Monthly payments that fit within your limits
Result: you save time and avoid unattainable crushes.
b) Be more credible to sellers and brokers
In a competitive market, a seller will often prefer an offer accompanied by a pre-approval rather than a mere “intention.”
It shows that:
- Your financial situation has already been analyzed
- Your chances of obtaining financing are high
- You are a serious buyer
c) Protect your budget… and your stress
The pre-approval helps you to:
- Avoid over-indebting
- Understand the real impact of payments on your monthly budget
- Better prepare for other costs: welcome tax, notary fees, inspection, moving, etc.
3. What elements are analyzed for a pre-approval?
Lenders rely on several indicators, including two key ratios widely used in Canada:
a) The GDS ratio (Global Debt Service)
The GDS calculates what portion of your gross monthly income goes to housing-related costs:
- Mortgage payment (principal + interest)
- Municipal and school taxes
- Heating (often an estimated amount)
- Condo fees (only a portion, if applicable)
Institutions typically like the GDS to be around 32% or less (this can vary).
b) The TDS ratio (Total Debt Service)
The TDS takes into account all your debts, namely:
- Housing costs (as for the GDS)
- Credit card payments (minimum payments)
- Auto loans
- Lines of credit
- Student loans, etc.
Usually, a TDS of around 40–44% maximum is targeted, depending on the lender and the file.
c) Your credit
Your credit score (and your history) is very important:
- Good score = better chances of approval and better rates
- Bad score = stricter conditions, higher rates, or denial
4. Documents to prepare for a pre-approval
To avoid back-and-forth, prepare in advance:
Income
- Recent pay stubs
- T4 / Statement 1 or tax assessment (if applicable)
- Employer letters (length of employment, position, salary)
- For self-employed: financial statements, tax returns, assessment notices
Down payment
- Bank statements showing savings
- Proof of RRSP withdrawal (LIF/RPP, if used)
- If a family gift: signed gift letter + proof of funds
Debts
- Credit card statements
- Auto loan contracts, lines of credit, other loans
The more complete your file, the faster and more accurate the pre-approval.
5. Prequalification vs pre-approval: it’s NOT the same thing
- Prequalification
- Often based on information provided verbally or online, without in-depth analysis or document verification. It’s a quick estimate, useful for getting a general idea.
- Preapproval
- Involves a serious verification of your documents, your credit, and your debt ratios. This is what brokers and sellers take seriously in a transaction.
To shop for a property, the pre-approval should be your goal.
6. Does the preapproval lock in my interest rate?
In most cases, the preapproval:
- Offers a guaranteed rate for a specified period (often 90–120 days)
- Protects you if rates rise during your search
- Sometimes allows you to take advantage of a better rate if rates fall before purchase
Important: the preapproval does not obligate you to borrow, nor from that lender. You keep your shopping freedom.
7. How long is a preapproval valid?
Often between 90 and 120 days, depending on the institution.
If your property search stretches, your advisor can:
- Update your file (new pay stubs, etc.)
- Renew your rate guarantee, if needed
8. Can you be denied even with a preapproval?
Yes, it’s possible in some cases, for example:
- Your financial situation changed (new debt, job change, reduced income)
- Your credit has deteriorated
- The chosen property does not pass the bank’s appraisal (price deemed too high, condition of the property, building type, etc.)
That’s why it’s essential to not take on new large debts (car, furniture, credit cards) between the pre-approval and the purchase.
9. Mortgage broker or bank?
You have two main options:
Bank
- Direct relationship with a specific institution
- Products and rates from that bank only
Mortgage broker
- Shop around for you with several lenders
- Can sometimes obtain more favorable terms depending on your profile
- Usually compensated by the lender, not by you (in most cases)
What matters is to work with someone who:
- takes the time to explain your borrowing capacity
- helps you stay within your limits rather than pushing you to the max
10. Conclusion: the pre-approval, your compass to buy with confidence
A mortgage pre-approval is more than a number on paper:
- It’s a financial compass guiding your searches
- An tool to negotiate harder and reassure sellers
- Protection against over-indebtedness and surprises
Before booking a visit, falling in love with a triplex, or making a multiple offer, take the time to obtain a solid pre-approval.
You thus buy with clear figures, a realistic plan, and much more peace of mind.