Buying Your First Home
What Is a Mortgage Pre-Approval?
A mortgage pre-approval can help you understand your budget before you begin looking at homes, but it is important to know what it does and does not confirm.
Here's the Quick Answer
A mortgage pre-approval gives you an estimate of how much you may be able to borrow.
Your mortgage broker or lender reviews your current financial information to estimate the mortgage amount you may qualify for. This can help you set a realistic price range before you start looking at homes.
A pre-approval is not a final mortgage approval. Once you have an accepted offer, the lender still needs to review the property, your documents, and your financial situation before approving the mortgage.
Why This Matters
What Happens During a Mortgage Pre-Approval?
A mortgage pre-approval is an early review of your finances before you have chosen a property.
Your mortgage broker or lender will usually look at your income, employment, credit history, existing debts, and available down payment. They will use this information to estimate how much you may be able to borrow.
Depending on the lender and the stage of the process, you may also be asked to provide documents such as pay stubs, employment letters, tax documents, bank statements, or proof of your down payment.
What Does a Pre-Approval Tell You?
A pre-approval can give you a clearer idea of the price range that may work for you.
It can also help you understand your estimated mortgage amount, possible monthly payments, down-payment requirements, and other costs you may need to prepare for.
The highest amount you may qualify for is not always the amount you will feel comfortable borrowing. Your own budget should also account for property taxes, utilities, strata fees, maintenance, transportation, and the rest of your monthly expenses.
You can compare mortgage amounts and payment options using the Mortgage Payment Calculator.
Does a Pre-Approval Guarantee the Mortgage?
No. A mortgage pre-approval is based on the information available when the review is completed.
Once you have an accepted offer, the lender still needs to approve the property. This may include reviewing the purchase contract, property details, appraisal, location, condition, and marketability.
The lender will also confirm your income, employment, down payment, debts, and credit before issuing a final approval.
Even a strong pre-approval can change if your financial situation changes or the property does not meet the lender's requirements.
What Can Affect Your Pre-Approval?
Your pre-approval is based on a snapshot of your finances. Changes made before your mortgage is finalized can affect the amount you qualify for or the lender's decision.
This may include:
- changing jobs or becoming self-employed
- taking on a new car loan, line of credit, or credit card balance
- missing payments or seeing a change in your credit
- using part of your down payment for another expense
- an increase in interest rates or qualification requirements
Before making a major financial change, it is a good idea to speak with your mortgage broker so you can understand how it may affect your approval.
When Should You Get Pre-Approved?
It is usually helpful to get pre-approved before you become serious about viewing homes or making an offer.
This gives you time to understand your budget, organize your documents, discuss any concerns, and make adjustments if something in your application needs attention.
It can also help your realtor focus the search on homes that fit both your financing and your comfort level.
What About a Rate Hold?
Some lenders may hold an interest rate for a limited period while you look for a home. The length and conditions of the rate hold can vary by lender.
A rate hold may protect you if rates rise before you purchase. If rates fall, your mortgage broker can review the available options and determine whether a lower rate may be available.
A rate hold does not guarantee final approval. You and the property still need to meet the lender's requirements.
Example
Setting a Budget Before House Hunting
Imagine you are preparing to buy your first home and have been viewing properties priced around $750,000.
After reviewing your income, debts, down payment, and estimated housing costs, your mortgage broker determines that a lower price range would fit your finances more comfortably.
You now have a clearer budget before making an offer. You can focus on suitable homes and avoid building your plans around a purchase price that may not work.
The pre-approval has not guaranteed the mortgage, but it has given you a much stronger starting point.
Common Questions
Is a mortgage pre-approval the same as a final approval?
No. A pre-approval is an early estimate based on your current financial information. Final approval happens after the lender has reviewed the property, your supporting documents, and your financial situation.
How long does a mortgage pre-approval last?
The timing varies by lender. Many pre-approvals and rate holds are available for a limited period, often around 90 to 120 days. Your mortgage broker can confirm the terms that apply to your lender.
Does a mortgage pre-approval affect my credit?
A lender may request a credit check as part of the pre-approval process. A credit inquiry may have a small effect on your credit score, but it allows the lender and mortgage broker to review your credit history and current obligations.
Can my pre-approved amount change?
Yes. Changes to your income, employment, debts, credit, down payment, interest rates, or the lender's requirements can affect the amount you qualify for.
Should I use the full amount I am pre-approved for?
Not necessarily. The maximum amount you may qualify for can be different from the amount that feels comfortable within your monthly budget and other financial goals.
Should I get pre-approved before speaking with a realtor?
There is no required order, but getting pre-approved early can help you and your realtor focus on homes that fit your budget.
Helpful Tool
Estimate Your Mortgage Payment
Use the Mortgage Payment Calculator to compare mortgage amounts, interest rates, amortizations, and payment frequencies.
Try the Mortgage Payment CalculatorWhat to Explore Next
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Still Have Questions?
A mortgage pre-approval can give you a clearer starting point before you begin looking at homes. I would be happy to review your situation, answer your questions, and help you understand what may fit comfortably within your budget.
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