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Pre-Approvals 101: Everything You Need to Know about Mortgage Pre-Approvals

Pre-Approvals 101

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Wondering if you qualify for a mortgage? Curious to know how much you’d be approved for? In this guest post, Kelly Sullivan, a mortgage specialist for the Bank of Montreal, answers all our Pre-Approval questions.

Pre-Approvals – The Mystery Unravelled

I hear from clients that they wanted to call me months ago but weren’t sure about getting a Pre-Approval. Seems the common deterrent is fear of the unknown. No one wants to be told “no” or be unprepared. I thought I would address what a Pre-Approval is and how to get one.

What Does a Pre-Approval Do for Me?

Pre-Approvals take very little time and are a great way to determine what you can buy, how much you can afford to spend, when you can buy it, and it also reserves a rate for you for 90 days. The rate reserving is very important because if interest rates go up, yours would not but if they went down, you get the lower of the two on the closing date.

What do I need to get a Pre-Approval?

Qualifying for a mortgage requires providing some personal information such as the following:

  • Full legal name
  • Date of birth
  • Social Insurance Number
  • Current address and how long you’ve lived there (if less than 3 years, the previous address needs to be included as well)
  • Home phone number
  • Current employer and length of time at current job (if less than 3 years, previous employer needs to be included too)
  • Current job title, work phone number, and rate of pay (by the hour and how many hours or yearly salary)

Documentation to bring: If you are salaried or paid by the hour you need to bring a recent pay stub. If you are self-employed, commissioned, a seasonal worker, someone who works a lot of overtime, or someone that works two jobs part-time then you need to bring in 2 years of personal income tax returns and your most recent Notice of Assessment. Your Notice of Assessment is what the Government of Canada mails you (1 page) that shows your summary and confirms that you do not owe federal income tax.

List of current assets:

  • Cars – type, year and value
  • Any existing real estate – property address, existing mortgage balance, existing mortgage payment and address where the mortgage is.
  • RRSPs – where they are and what the  amount is
  • Pension plan – with whom and how  much
  • Investments (tax-free savings accounts, mutual funds, GICs, bonds) – where they are and what the amount is
  • Bank accounts – where they are and their balance
  • Any other assets (land, trailers, motorcycles, etc.)

What does the bank do with this information?

From this your credit is checked as your credit score is very important when qualifying for a mortgage. This information also allows us to calculate how much home you can afford. We use two calculations: one is called Gross Debt Servicing (GDS) and the other is called Total Debt Servicing (TDS).

GDS = your new monthly mortgage payment, property tax payment and heat (we use $150 as a default) divided by you gross monthly income. This should be under 32%.

TDS = gross monthly income divided by the total of all your monthly obligations: potential mortgage payment, property tax, car loan or lease payment, any bank loan payment, 5% of outstanding balances on credit cards is used for the payment per month on the card (so sometimes paying down a card can make a big difference in the size of home you can qualify for), 1.5% of credit line, and heat. This should be under 42%.

Pre-Approvals can take as little as 15 minutes and offer peace of mind as they tell you how much you have to work with and they guarantee your rate. There is no harm in getting one. If you can’t buy at this time then the information gathered for the Pre-Approval will allow me, or your banker, to give you a personal plan on how to get into a position to buy a home as fast as possible!

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There are only advantages to getting a Pre-Approval. To get a Pre-Approval, please contact me anytime at:

Kelly Sullivan
Bank of Montreal Mortgage Development Manager
506-853-5706
kelly.sullivan@bmo.com

Robyn Allen – RBC – Mortgage Specialist

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