What does it mean to get pre-approved for a mortgage? What do you need to submit to the bank in order to get a pre-approval? We're here to walk you through the process. Step one is to define the term. A pre-approval is a document issued by the bank that states how much house you are able to purchase  in other words, your maximum debt capacity. It can be issued in two different ways, depending on whether it will be a conventional mortgage or an insured mortgage. The amounts are going to vary, but in the simplest form, the bank is going to tell you how much you qualify for based on how much you earn at your job. What kinds of documents do you need to present to the bank in order to get a pre-approval? Depending on whether you are an employee or self-employed, you'll have to meet a different list of criteria.

Employees applying for pre-approval

If you're employed by a company, the first thing you're going to present is a recent pay stub. You'll also need a letter of employment, your social insurance number, and any associated documents that show the bank you are a strong candidate. If you're missing one of these documents, some banks will accept a T4 or previous notices of assessment, but those won't build as strong of a case. Usually, the bank is going to require that you are a permanent, full-time employee and that you've been with your employer past your probation period (which is usually three months).

Self-employed individuals applying for pre-approval

If you're self-employed, the bank is going to average out your last two years of reported salary, based on your notices of assessment. So if you've started a new job recently and you change domains, or if you do not have two years’ worth of notices under your belt, you're unfortunately not going to qualify for very much. They need to see what your track record is in order to be able to qualify you properly. Other than that, they're going to look at your credit history, your down payment source, and potentially secondary items like the rent that you've been paying, your cell phone bills, your telecommunications bills, or other documents of that nature.

The importance of pre-approval

At LJ Realties, we will not schedule a property visit with a client that is not pre-approved. Unfortunately, in our current market, visiting a property without a pre-approval is a waste of time: whenever we are presenting offers, if we're not pre-approved, that offer is automatically being tossed aside. It's simply too competitive. If you have more questions about getting pre-approved or the steps you should complete before your first visit, just ask! We have years and years of experience behind us and we love chatting about real estate.