How to Get a Private Mortgage Pre-Approval

The Do’s and Dont’s of Getting a Private Mortgage Pre-Approval

The housing sector is thriving in Ontario with both unprecedented housing sales and increases in the average home price in the GTA and elsewhere throughout the Province. Despite the ongoing Covid-19 Pandemic, Ontario homeowners are witnessing a thriving real estate market.

According to the Ontario Real Estate Association, residential sales activity reported through the Multiple Listing Service (MLS) in Ontario numbered 13, 885 units in January of this year which represents an increase of 29.5% when compared to house sales the same time last year. This represents a new sales record for January in the Province. The average price of resale residential homes sold in Ontario during January 2021 was a record $ 796,884 rising 26.7% from January 2020.

To profit from such a real estate upswing in Ontario a mortgage pre-approval can represent a good step towards being approved for a mortgage. When shopping around for a mortgage it may be advisable to go through the process of pre-approval to help give an idea of how much you can potentially afford and what type of mortgage you will likely qualify for.

What Not to Do After Being Pre-Approved for a Mortgage?

Although it is advisable to try to have an estimate of what you can be pre-approved for when it comes to applying for a mortgage loan, there are things that you should not do concerning the pre-approval process.

  • After being pre-approved, do not apply for further credit– After providing numbers that reflect your current financial situation it is very important to not add any new potential debts. Applying for a credit card, for example, can potentially increase your debt burden if you are not able to pay in full.
  • Don’t plan on budgeting at the very high end of your budget- financial circumstances can change so allow for some wiggle room in your budget when plugging in the numbers.
  • Avoid making any larger purchases- don’t throw something into your overall budget that may change the numbers when it comes down to sitting down with a lender. The numbers should stay the same.
  • Do not make any changes to your job status– avoid quitting your current position or applying to other jobs that may have a probationary period. The numbers should stay the same and this includes salary figures that you provided in the pre-approval process

Do pre-approvals hurt your credit score?

It is important to keep in mind that a pre-approval is essentially an estimate as to what you can qualify for in a mortgage loan. A lender will not be pulling your credit during the pre-approval process as a result, pre-approval will not affect your credit score. When the time comes to sit down with a lender and negotiate the terms of a mortgage loan, your credit will be pulled from either Equifax or Transunion.

What should you do before applying for a mortgage?

  • Know your credit score and try to increase your credit score before seeking pre-approval.
  • Gather all paperwork necessary including proof of income, investment statements, and proof of assets. 
  • Research good pre-approval rates.
  • Be in contact with a broker for direction.

Can you be pre-approved for a mortgage and be denied? 

The short answer is yes. Mortgage pre-approval is based on specific criteria. Minimum criteria are necessary to qualify for a mortgage loan from a bank or credit union. These lenders will require a very good credit score, sufficiently demonstrated income, and a low debt ratio compared to existing assets.

Private lenders are in a position, however, to pre-approve homeowners for a secured mortgage loan despite credit issues or other types of salaries including self-employed income. Although there should be evidence of monthly salary and any additional assets that will prove beneficial, being denied a private loan is less likely than other types of lenders.

Should I pay off Credit Card debt before applying for a mortgage?

Any type of debt that requires ongoing monthly payments should be paid down as soon as possible. By doing so, you are lowering your overall household debt ratio which will increase the likelihood of being approved for the best terms for a mortgage loan.

This is especially true for credit card debt. Of all household debt, credit card debt should be paid down first. Not only do credit cards usually come with very high-interest rates (some cards charge as high as 19% to 21% interest or higher as in the case of some store credit cards) but credit debt is considered bad debt in the eyes of all lenders. 

If credit debt is at levels deemed too high by lenders, this could prevent many lenders from pre-approving you for a mortgage loan. Private lenders may be able to pre-approve you for a mortgage loan, however, if other criteria are met.

What Mortgage Rate Can I Get Pre-Approved For? 

Mortgage rates vary depending on the financial picture of each applicant. The higher the income, the lower the household debt, the higher the credit score, and the likelihood of additional assets will ensure the best rates on a pre-approved mortgage.

Conversely, damaged credit, difficulty to prove monthly salary, lack of assets to serve as additional collateral will be reasons to pre-approve for a mortgage loan with a higher interest rate and higher overall fees associated with the pre-approved mortgage. Private lenders will be able to pre-approve for such a loan.

Interest rates associated with most private mortgage loans range between 7% to 12% depending on the unique financial circumstances of the applicant. Banks will be able to negotiate lower interest rates on pre-approved mortgages.  The criteria, however, are very stringent, and damaged credit will prevent a bank from pre-approving an applicant.

Private lenders will be able to pre-approve applicants with damaged credit and non-traditional income when these applicants may have been denied pre-approval by a bank.

How to Apply for Private Mortgage Pre-Approval with Mortgage Broker Store 

At Mortgage Broker Store we will be able to provide for you the Automatic Private Mortgage Pre-Approval Tool. This tool will enable you to determine what types of loans you may qualify for which will take the questioning out of the mortgage approval process. Once completing the application, a PDF format of the pre-approval document is available which will be emailed to you for your reference.

There are many types of mortgage loans that are available through well-established private lenders. If the pre-approval tool indicates that you have not been approved, we can sit down with you and try to negotiate terms on a private mortgage loan looking at your complete financial picture. Don’t hesitate to contact us at your convenience. We will be able to help you negotiate mortgage financing to get you closer to your financial goals.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.