Pre-Approval

Pre-approval is the process a lender uses to determine, in advance of a specific purchase such as a home, how much a borrower is likely eligible to borrow and under roughly what terms. It typically involves the lender reviewing the borrower's income, debts, assets and credit history in some detail, going further than a simple informal estimate.

Pre-approval is generally considered more reliable than pre-qualification, a lighter-touch estimate based largely on information the borrower self-reports without formal verification. A pre-approval letter, backed by actual documentation review, carries more weight with sellers and real estate agents because it signals a genuine likelihood that financing will be approved once a specific property is identified.

Pre-approval works like getting a provisional green light from a lender before shopping, rather than finding out only after making an offer whether financing will actually come through. It does not guarantee a final loan, since the specific property and final underwriting still need to be completed, but it gives a borrower, and anyone they are negotiating with, meaningful confidence that financing at roughly the stated amount is realistic.

In competitive housing markets, sellers often favour buyers who already have a pre-approval in hand, since it reduces the risk that a deal later falls through due to financing problems.

• Submitting documentation of income, employment, assets and debts to the lender.
• A credit check, reviewing the borrower's credit score and credit history.
• An estimate of the maximum loan amount, interest rate and terms the borrower is likely to qualify for.

A pre-approval is not a guarantee of final loan approval. Once a specific property is identified, the lender still needs to complete full underwriting, including an appraisal of the property itself, before issuing a final commitment, and factors such as a change in the borrower's financial situation or credit profile between pre-approval and closing can affect the final outcome.

Pre-approval is often confused with pre-qualification, a related but far less rigorous process. Pre-qualification generally relies on information the borrower simply reports, without the lender independently verifying income, assets or credit, producing a rough, informal estimate of borrowing capacity. Pre-approval goes further, with the lender actually reviewing documentation and running a credit check, which is why a pre-approval letter carries more credibility with sellers than a pre-qualification estimate alone.

Borrowers serious about making an offer on a property are generally advised to pursue full pre-approval rather than stopping at pre-qualification, since the stronger assurance a pre-approval provides can make a meaningful difference in a competitive market.

Mortgage pre-approvals typically carry an expiry date, often somewhere between sixty and ninety days, after which the lender's assessment must be refreshed, reflecting the fact that a borrower's financial situation, as well as market interest rates, can change meaningfully over just a few months. A borrower who has not found a property, or completed their purchase, before the pre-approval expires generally needs to go through at least a partial re-verification before the pre-approval can be relied upon again.

Because of this expiry, borrowers are generally advised to time their pre-approval request to align reasonably closely with when they expect to actively begin searching for and making offers on properties, rather than obtaining one many months before they intend to seriously shop.

Some pre-approvals are described by lenders as fully underwritten pre-approvals, meaning the loan has effectively cleared underwriting subject only to finding and confirming a specific property, offering an even stronger assurance to sellers than a standard pre-approval that has not gone through this deeper review.

Real estate agents often specifically ask for a pre-approval letter before scheduling property viewings in competitive markets, using it as a basic filter to confirm a prospective buyer's financing is realistic before investing time in showings.

A change in a borrower's employment status between pre-approval and closing, such as switching jobs, generally needs to be disclosed to the lender promptly, since it can affect whether the final loan approval still holds.