After years of saving, you’ve finally got enough for the down payment on your first house and you think you’re ready to go house hunting, except there’s just one problem: you have no idea what kind of house you can afford. That’s why it’s a good idea to get a mortgage pre-approval even before you start looking for a house to narrow the field and find the dream house that fits your lifestyle and budget.

Why Get Pre-Approved?

Getting pre-approved will provide you with the peace of mind of knowing the price range of houses you should be looking at. Once you supply the bank with your personal financial information, the bank will be able to provide you with a pre-approval of how much they are willing to lend you and at which interest rate. For example, based on your income the bank may be willing to give you a mortgage up to $320,000; if you have a down payment of $50,000 you could potentially buy a house up to a selling price of $370,000. It’s important to emphasize the words “up to”, as it’s key to look at the hard numbers and determine if you are comfortable stretching yourself financially.

Besides affordability, a mortgage pre-approval gives you peace of mind: once you find the house you’re looking for and you’re ready to make an offer, you can choose to exclude the condition of financing. In a multiple offer situation, the cleanest offer (the offer with the fewest conditions) has a good chance of being selected by the seller. For example, in March I made an offer on a house at $423,500 (the house was listed at $419,500), while another buyer offered $417,000; I can only speculate, but I believe the other buyer ended up winning the house because they left were pre-approved by the bank and were comfortable leaving out the condition of financing.

What is Required to Get Pre-Approved?

For most people, a mortgage is the biggest debt they’ll ever undertake, so it’s no surprise that the bank requires a lot of documentation before will pre-approve you. Be sure to supply your mortgage specialist with the following:

  • Personal identification, such as your driver’s license and SIN card.
  • Your most recent pay statements and your job offer letter from your employers within the last two years.
  • Financial and bank statements as proof of your down payment.
  • Income tax returns from the last two years.
  • A list of questions and a pen and paper for taking notes.

What does the Bank Look for When they Pre-Approve Someone?

Besides having a large down payment, two important criteria to the bank are your credit score and your employment history. Having a good credit score can be challenging for first-time home buyers for two reasons: they lack sufficient credit history or they are neck-deep in debt from student loans and credit cards. That’s why it’s a good idea to start credit history as early as possible; even if you make a few purchases on a credit card and pay them off every month, at least it will show the bank that you can handle debt. Banks are also looking for steady employment history; if you’ve been with the same company and earn a decent wage you’re more likely to get pre-approved than someone who has had five jobs in the past two years.

Shop Around

It’s a good idea to do your own research and shop around for the best mortgage pre-approval rate. Some banks, like ING Direct, offer the same rate to all clients, while other banks allow you to haggle for the best rate. It’s also important to know the features banks offer with their mortgage. For example, with a Scotiabank mortgage you increase your monthly mortgage payments by 15%, pre-pay up to 15% of your original principal each year, and double up your mortgage payments. These features can allow you to pay down your mortgage significantly faster.

Closing Thoughts

I’ve only touched the tip of the iceberg when it comes to mortgages. It’s a good idea to speak with your realtor or your local bank branch and get in touch with a mortgage specialist who can sit down with you and explain the in’s and the out’s of mortgages. That way when you finally find the house you’re looking for, you can confidently put in an offer instead of scrambling for a mortgage pre-approval at the last moment.

For you home owners out there, what was your experience obtaining your first mortgage?  Did you get pre-approved?

If you’re interested, here are other real estate posts.

About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University.


  1. Brandon on July 25, 2011 at 10:12 am

    Use a mortgage broker. I went through Dominion Lending (before Don Cherry started advertising for them!) and they got me a better deal than I could get by going to the banks and asking for a mortgage.

    I also want to emphasize the “up to” on pre-approvals. I was pre-approved for a $600,000 mortgage even though the average SFH in my town is about $220,000! I ended up buying a home for 212 and after almost a year of bills I have no idea how I’d survive had I bought up to my limit!

  2. Elbyron on July 25, 2011 at 12:03 pm

    ING Direct does not offer the same rate to all clients. In fact, their variable rate mortgages can be obtained for .05 to .1 percent lower when going through a broker versus talking to them directly. They won’t negotiate either, so if it’s ING you want to use, make sure you go through a broker – one that does a lot of business with them (as this seems to be where the discount comes from).

    For my first home purchase, I did get pre-approved with ING, though at the time I didn’t know about the “broker discount”. They had a very competitive rate and their 5-year closed variable mortgage changed to open after 3 years. Unfortunately they don’t offer this any more, and their rates aren’t quite as good as they used to be, but are still amoung the lowest that can be found.

  3. FrugalTrader on July 25, 2011 at 12:34 pm

    On our first house way back in 2003, we went to our bank (because we didnt’ know any better). It was a 5 year fixed for 4.59%..

  4. Brandon on July 25, 2011 at 1:53 pm

    I had a choice between the following 5 year variable mortgages:

    prime – 0.3 through ING
    prime – 0.65 through ING using a broker

    … go figure!

  5. Steve on July 25, 2011 at 3:32 pm

    ING and PC Financial post fairly competitive rates online, whereas the banks only give you there best rate in person.

    A broker has a conflict of interest, you are paying them nothing, so by definition they are not working for you. They are paid by the lender, so they are working for them.

    I usually recommend calling up two brokers. Check ING or PC Financial, see who is lower, then tell the broker to beat it. The brokers will come back with something better, but not the best they can get (because that reduces their compensation). Of the two brokers, tell the broker with the poorer offer that you got a better deal offered from the other broker, then they will come back with an even better deal, which should be safe to take.

    The other option is to find a fee-for-service broker who gets paid nothing from the lender, only your fee. Then they are working for you, and you don’t need to play games.

  6. Trevor on July 25, 2011 at 4:47 pm

    It’s pretty easy to get the best rate: To your bank. Get “Their best rate”. Go to some other bank. Tell them to do better. Go back to your bank and do the same. Rinse and repeat, should take a couple of days.

    I got a rate better than the broker’s by doing that.

  7. NYCer on July 25, 2011 at 5:10 pm

    Yeah I went with 2 brokers. One gave me ING and the other didn’t and I told the one who didn’t what I got from ING and she beat it.

    I also went to my bank “PC Financial” and got a pre-approval, total joke and waste of time, their rate was way too high.

    I was personally VERY satisfied with ING services as a mortgage company.

  8. Financial Uproar on July 25, 2011 at 9:19 pm

    As a former mortgage broker, I know having a pre-approval isn’t reason enough to leave the financing condition out of a purchase contract. The reason is that a lender looks at two things when approving you for financing- you and the property. If they determine you’re paying too much for the property, you can be declined even with a pre-approval in hand.

    As for ING, their rates are decent, but not exceptional in my experience. I don’t think I ever did a deal with ING, other lenders were just as competitive. Scotia’s 15/15 prepayment options are nothing special, most lenders actually offer 20/20 prepayment options.

    Oh, and I’ve never heard of a broker who doesn’t get paid by the lender @ Steve (comment #5)

  9. RichmondN on July 26, 2011 at 12:48 pm

    Advising people to leave a financing condition out of an agreement to purchase is dangerous and pure folly. As a realtor, I educate clients that preapproval from a potential lender gives them a clearer sense for budgeting and shopping – it’s what they can potentially spend on a property and helps us to narrow down choices for a better fit. What someone should spend is another matter entirely – the lender doesn’t care whether you spend the rest of your days ‘house poor’ at home eating kraft dinner imagining what it would be like to just go out once this year, but they do expect you to keep your mortgage payment commitments.

    Additionally, unless the client actually has a formal commitment letter to lend from a lender they are not truly ‘preapproved’ – they just really have some soft numbers crunched through by the mortgage salesperson and it’s still possible for that ‘preapproval’ to crumble as it makes it’s way through the bank. The financing condition also exists to determine whether the lender is willing to write the mortgage on the particular property. Weigh your options carefully. Yes, less conditions can strengthen your offer. But, leave out a financing condition from your agreement and you are potentially opening yourself to being on the hook for closing a deal, with no way to pay for it.

  10. cannon_fodder on July 26, 2011 at 10:29 pm

    +1 for using a mortgage broker. Very easy way for someone else to do the negotiating to get a great deal.

    My experience with TD Canada Trust specifically is that they are very unyielding and disinterested in getting your business. Couldn’t (or wouldn’t) even come close.

  11. Thomas on July 26, 2011 at 11:17 pm

    I’m a fee based financial planner but also hold a mortgage agents license. This allows me to “shop” around for the mortgage that best fits my client needs. This could mean a better rate, better terms or flexibility . I thing understanding mortgages is important in as much as any financial plan involves allocating the cash flow remaining after the mortgage and other fixed expenses are accounted for.

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