The first step in your home buying journey should be to get mortgage pre-approval. As I review the process with clients, many ask, "how long does it take for mortgage pre-approval?"
To complete the process and get mortgage pre-approval it will take anywhere from 1 hour to 24 hours. A mortgage pre-approval will include a review of your credit record and score as well as review your income documents. Without a review of your credit and income documents, you haven't received a mortgage pre-approval.
Sometimes I speak with clients who think that they were pre-approved but the person they met with didn't look at their income documents nor did they look at their credit. If your broker or lender didn't look at these documents, then you are not officially pre-approved.
It's important to know your numbers. If you talk to a professional and they don't check your credit or income documents, then they are just guessing at how much mortgage you can qualify for.
I've met clients who have purchased a home and thought they were pre-approved. They had talked to someone and received a "number" but there was no document verification. That being said, let's look at what is involved when applying for a mortgage pre-approval.
What Is Involved When I Apply For Mortgage Pre-Approval?
To apply for a mortgage pre-approval, you will provide details about yourself. You will provide the following details:
- 3 years of employment history
- 3 years of residence (where you live) history
- Your SIN Number, (social insurance number)
- Your Birth Date
- Details about your assets (vehicles, savings, investments, properties, etc.)
- Details about your debt, credit cards, loans, etc.
You will give your broker permission to check your credit. They will order a full report. This report will include your beacon score and a summary of all your debts.
You will also be asked to provide documentation to confirm your income. Depending on how you are paid, this could take many different forms:
- Employment Letter and Recent Pay Stub
- Employment Letter, pay stub & 2 years income tax returns
- pay stub & 2 years income tax returns
- 2 years income tax returns & T4's
Your broker will review your details and check your credit. They will also review your income documents to determine what income they can use to calculate how much you qualify for.
Once all this is completed, then you will receive a mortgage pre-approval with a mortgage amount and purchase price that you will qualify for.
This process could take a little as an hour or could take 24 hours if an underwriter has to review your details and documents.
Does A Mortgage Pre-Approval Mean That I'm Guaranteed A Mortgage?
No, when a lender provides you with a pre-approval, they are looking at your details at one point in time. They are not looking at the property that you may purchase.
Once you find a home, the lender will want to make sure they also like the property. If you purchase a home that the lender does not like for some reason, then you may be declined for the mortgage on that home.
This doesn't happen very often, but it can happen. It's really important that when you make an offer to purchase a home, you should include a condition for financing. That way, if the lender doesn't like the home, or thinks the price you are offering is too high, then you have options to modify the offer or cancel it altogether.
The pre-approval is a look at you and your income and your credit at one point in time. It's important to keep things the same. Don't finance a new car purchase or buy something on credit without letting your broker know.
Can I Purchase A Car or Change Jobs After I Get A Mortgage Pre-Approval?
Once you are pre-approved to purchase a home, you can go shopping and narrow down your search. One thing to keep in mind. It's important not to make any major purchases or major changes in your income.
When you find a home to buy, the lender will look at your credit again. They will check your income again. If you have made changes or increased your debt, then you may no longer qualify for the amount of mortgage that you were originally qualified for.
I had a client who had been searching for a home for over 6 months. She had a good job but was headhunted by a competing company and offered a better job with more income.
She let me know and I let the lender know about her job change. The lender reviewed all the details again and provided an updated approval for my client. If she hadn't let us know things could have gone badly.
Lenders don't like surprises. If they check your employer to verify that you work there and you don't work there anymore, your lender could cancel the mortgage approval and may not change their minds because you didn't communicate with them.
Once you are shopping for a home and have a pre-approval, make sure you chat with your mortgage broker before making changes.
How Long Is a Mortgage Pre-Approval Good For?
Most mortgage pre-approvals are good for 90 to 120 days. However, the lender will check your credit score and credit report again if you purchase later in those 120 day period.
The mortgage pre-approval provides you with two benefits. First, you know how much home you can purchase. Second, your lender will hold an interest rate for you. That is, the interest rate that is on the approval would be the highest rate that you would receive within that 90 to 120 day period.
If rates were to go up as you are shopping, then you would receive the interest rate they offered.
If the rates were to go down, often the lender would provide you with the lower interest rate.
This doesn't mean that you only have 90 to 120 days to find a home. If you don't find a home, you can update your mortgage pre-approval for another 90 to 120 days.
You will have to provide updated income documents and they will check your credit again, but you could do this every 3 to 4 months until you find your perfect home.
Do Pre-Approvals Hurt Your Credit Score?
No, a pre-approval will not hurt your credit score. When you apply for a mortgage pre-approval, the lender will check your credit. That inquiry will show up on your credit report.
This doesn't hurt your score, but every inquiry does affect your credit score a little. Therefore, don't have too many inquiries.
If you go to multiple lenders and apply at the same time, then you would affect your score more than if you get mortgage pre-approval at just one lender.
If your credit score is already low, then an inquiry will have a bigger effect on your score than if your credit is very good or excellent. You can discuss your credit history with your broker when you apply for a mortgage pre-approval.
In my opinion, work with a mortgage broker (work with us, check out our mortgage pre-approval calculator, it's on another page on our website).
A mortgage broker has access to many lenders and will only pull your credit once and have access to many lenders for mortgage pre-approval.
Is A Mortgage Pre-Approval a Hard Inquiry?
Yes, when you apply for mortgage pre-approval the lender or mortgage broker will pull your credit and this is considered a "hard" inquiry. They will receive your beacon score and a full summary of your liabilities with payments and payment history.
It isn't a bad thing to have a broker or lender pull your credit, especially if you are planning to purchase a home soon.
I met a client a few years ago who had been searching for a home for the last 6 months. He found a few homes that he liked and was ready to get pre-approved.
He didn't get a pre-approval when he started his home search and when we checked his credit there was a collection item showing. He had no idea what it was. He had never dealt with this company before.
The collection item significantly affected his score and he couldn't qualify for a mortgage. There was a fairly easy way to fix this, but it took him more than a month to have the issue removed from his credit report.
He was eventually pre-approved and he did purchase a home, but the 2 he originally liked were sold. Had he been pre-approved when he first started house hunting, this issue would have come to light then. He could have fixed the issue earlier in the process and could have acted faster.
It was a big lesson. Sometimes things happen to your credit and you aren't even aware of them. Getting a pre-approval early can never hurt.
What If My Mortgage Pre-Approval Expires?
If your mortgage pre-approval expires, then you can update the pre-approval by allowing your lender to check your credit again and providing updated income confirmation. You can refresh your mortgage pre-approval for another 90 to 120 days.
This process won't take too long. Your lender will have most of your information already. If your income hasn't changed, then just provide a pay stub. You could refresh a mortgage pre-approval that has expired in 5 to 10 minutes.
Conclusion
It doesn't take too long to get a mortgage pre-approval, the important thing to remember is that your lender should check your credit and review your income.
If you were told that you are "pre-approved for a mortgage" but your broker or lender didn't check these documents, then you aren't pre-approved.
We have a mortgage pre-approval calculator that you can use to check how much you may qualify for, but this isn't an official mortgage pre-approval.
Check out our pre-approval calculator. It's a great tool (if I say so myself) to give you an idea about how much mortgage you qualify for!
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