A Pre-Approval Does Not Guarantee a Mortgage.

This post is an excerpt from the Canadian Mortgage Trends article of the same name, authored by Ross Taylor, April 27, 2021.

Many Canadians are under the assumption their mortgage is as good as done once they have a mortgage pre-approval.

But the truth is a buyer cannot expect a mortgage pre-approval will automatically translate into a mortgage. The lender now needs to consider the property itself, approve all the terms and review the documentation before you transition from pre-approved to approved.

Buyers often do not appreciate there is still some uncertainty when it comes to their mortgage. Unfortunately, once in a while this uncertainty bites back – with calamitous consequences.

Going in Without Conditions in a Hot Market

Not that long ago, when housing supply equalled or exceeded demand, the buyer would insert a clause requesting five business days (usually) to arrange mortgage financing – this is called a “condition of financing.” Even one or two days can make a world of difference.

These days across much of Canada, residential real estate is such a hot commodity it’s more likely offers to purchase will be firm and without a condition of financing.

The process is very skewed in favour of sellers at the moment, and it’s really not a comfortable or fair situation for the buyer. The fact of the matter is homebuyers, especially first-time buyers, are taking this risk every day. In many markets, it’s the only way you will win in a multiple-offer situation.

It is clearly in the buyers’ best interests to know in advance how much mortgage they might qualify for. This is achieved by providing complete information and documents to your bank or mortgage broker and allowing them a deep-dive into your personal finances and credit. They can then underwrite your application upfront.

Even when a thorough review has been conducted, and you are clutching a pre-approval certificate, there are many things that could happen to compromise your home purchase.