Understanding Mortgage Preapproval
When you’re thinking about buying a home, getting preapproved for a mortgage is one of the smartest first steps you can take. It gives you a clear idea of how much you can afford, helps you estimate your monthly payments, and may even lock in an interest rate for a certain period—usually between 60 and 130 days, depending on the lender.
Different lenders may refer to this process using terms like prequalification or preauthorization, but the goal is the same: to give you a clearer picture of where you stand financially.
During this process, a lender reviews your financial details—like your income, debts, and credit history—to determine how much they’re willing to lend and at what interest rate. Keep in mind, this isn’t a final approval, but it’s a strong step in the right direction.
Where Can You Get a Mortgage Preapproval?
Mortgage Lenders
These are the institutions that lend money directly to you. Common mortgage lenders include:
- Banks
- Credit unions
- Mortgage companies
- Insurance firms
- Trust and loan companies
Each lender offers its own terms and interest rates, so it’s a good idea to shop around and compare. It’s also important to understand the terms of any contract before signing. Switching lenders later could lead to extra fees or penalties.
Mortgage Brokers
Brokers don’t lend money themselves—they work as intermediaries, connecting you with lenders. Some lenders only offer their mortgage products through brokers, while others deal directly with clients.
Because brokers often work with a variety of lenders, they can sometimes offer a wider range of options. That said, not all brokers have access to the same pool of lenders, so offerings may differ. Be sure to ask which lenders a broker works with.
Usually, brokers are paid a commission by the lender, so you likely won’t have to pay for their services directly. Just make sure the broker is properly licensed in your province or territory.
What You’ll Need to Provide
To get preapproved, lenders or brokers will ask for several documents and financial details, including:
- Valid identification
- Proof of income or employment
- Information about your assets (e.g., savings, vehicles, properties)
- Details of your debts and monthly obligations
If you’re employed, a recent pay stub and a letter from your employer will typically suffice. If you’re self-employed, expect to show tax assessments for the last two years.
They may also ask for bank or investment statements to confirm your down payment and closing costs.
Your monthly debts may include:
- Credit card payments
- Car loans
- Student loans
- Support payments (child or spousal)
- Lines of credit
Things to Keep in Mind
Your preapproval amount represents the maximum a lender might offer—but it doesn’t mean that’s the amount you should spend. Buying a home is more than just covering the purchase price—you’ll also need to account for:
- Closing costs
- Moving expenses
- Future maintenance or repair costs
Looking at homes below your maximum budget can help you avoid financial stress later on.
What Happens If You’re Declined
Even if you’re preapproved, a lender can still turn down your mortgage application later on. Before final approval, they’ll assess the home you want to buy. If the property doesn’t meet their criteria, they might deny the loan.
Other reasons you could be declined include a low credit score or changes in your financial situation. But don’t worry—there are usually other paths available. Your lender might:
- Offer a smaller mortgage amount
- Ask for a larger down payment
- Charge a slightly higher interest rate
- Suggest you add a co-signer
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