If you’re a Canadian homebuyer looking to navigate the mortgage landscape, understanding the requirements for mortgage pre-approval is crucial. Securing pre-approval can give you confidence in your home search and help you make informed decisions. Below is everything you need to know about getting pre-approved, as well as essential facts about mortgages in Canada.

Mortgage Pre-Approval: What You Need to Know

When seeking a mortgage pre-approval in Canada, you’ll need to gather specific documents that align with the requirements of the Canadian financial system. Here’s a detailed list of the standard documents required:

1. Proof of Identity

  • A valid government-issued identification, such as a driver’s license or passport.

2. Proof of Income

  • Recent pay stubs (typically for the last 30 days).
  • T4 slips from your employer for the latest tax year.
  • Personal tax returns (T1 General) for the past two years, along with the Notice of Assessment from the Canada Revenue Agency (CRA) if you are self-employed.

3. Financial Assets

  • Bank statements for checking and savings accounts for the last 2-3 months.
  • Statements for any investment or retirement accounts, such as RRSPs or TFSAs.

4. Debts and Liabilities

  • Documentation showing outstanding debts, including credit cards, student loans, and other loans.

5. Employment Verification

  • Contact details for your employer, which may be required for verification purposes.

6. Proof of Down Payment

  • Documentation indicating where your down payment funds are coming from, whether from savings or gifts from family.

7. Credit Check Authorization

  • Permission for your lender to run your credit report.

For a full list of what I require for mortgage pre-approval, click HERE.

The Importance of Preparation

Having these documents organized will not only help expedite the pre-approval process but also provide you with a clearer picture of your mortgage options. If you have any specific questions or need assistance, don’t hesitate to reach out!

Key Points About Canadian Mortgages

If you’re starting from scratch with Canadian mortgages, here are some fundamental concepts to understand:

Types of Mortgages

  • Fixed-Rate Mortgages: Your interest rate remains the same for the entire term, providing predictable payments.
  • Variable-Rate Mortgages: Interest rates can fluctuate based on market conditions, often resulting in lower initial payments but potential increases over time.

Mortgage Terms

Mortgage terms in Canada typically range from 1 to 10 years. This term is the length of time you commit to the lender’s conditions, and you can usually renew your mortgage when the term ends.

Minimum Down Payment

In Canada, the minimum down payment varies based on the home’s price:

  • 5% for homes under $500,000.
  • 10% for the portion priced between $500,000 and $999,999.
  • 20% for homes over $1 million.

Mortgage Default Insurance

If your down payment is less than 20%, you must purchase mortgage default insurance (such as CMHC insurance) to protect the lender in the event of default.

Amortization Period

The amortization period is the total time to pay off the mortgage, commonly 25 years in Canada. Shorter amortization periods result in less interest paid overall but higher monthly payments.

Affordability Assessment

Lenders assess your ability to repay the mortgage based on your income, debt levels, credit score, and other financial obligations, using metrics like the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.

Pre-Approval Process

Getting pre-approved gives a clear idea of how much you can borrow and indicates to sellers that you’re a serious buyer. It typically involves submitting detailed financial documentation.

Additional Costs

Be prepared for closing costs when buying a home, which may include legal fees, inspection costs, and property taxes, totaling 1.5% to 4% of the home’s purchase price.

Seek Professional Help

I work with my clients every step of the way and truly believe that knowledge is power. It’s important to me that you understand the process and feel comfortable and informed every step of the way!

Get in touch today to book a free consult!