Mortgage pre-approval in Canada: how it works and how long it lasts

Pre-qualification vs pre-approval

Ads use these two words as if they meant the same thing. They don't.

A pre-qualification is a conversation. You tell someone your income, your debts and your down payment, and they run the ratios and tell you roughly what you can buy. Nothing is verified, no credit is pulled and no lender sees the file. It takes minutes and it costs nothing. It's most useful early on, when you're asking "what price range should I be looking in?" and not yet "what will a lender do?"

A pre-approval is an underwritten opinion. Your income is documented, your credit is pulled, your down payment is verified, and a specific lender reviews the file and holds a rate for you. It takes a day or two. It's what a seller's agent means when they ask if you're pre-approved.

The difference shows up on offer day. A pre-qualification won't hold up in a competitive purchase. A pre-approval will.

What a pre-approval covers

It holds your rate for a set period, usually 90 to 120 days. That's the firm part.

It doesn't commit the lender to the mortgage. A pre-approval depends on 2 things staying true: nothing material about you has changed, and the lender accepts the property you end up buying.

The second condition is the one that catches people. The lender has approved you, but it hasn't approved the house. Properties like these can be declined after a pre-approval is issued, for reasons that have nothing to do with you:

• A condo in a building with a thin reserve fund
• An acreage with a shared well
• A former grow operation
• A property with an unpermitted basement suite
• A mobile home without CSA A277 certification and a permanent foundation

What the lender checks

Lenders look at 4 things, roughly in this order of weight.

Your income and how reliable it is. Salaried income with a T4 is the simplest case. Hourly income with variable hours is averaged. Commission, bonus, self-employment and rental income are all averaged over 2 years and discounted in different ways. Lenders treat rotational work in the Alberta energy sector differently from one another, and that difference can decide whether a file is approved.

Your credit. The score is only part of it. Lenders look at how long your credit file has been open, whether you have at least 2 active tradelines with a couple of years of history, and whether there are any recent late payments. A 780 score on a 6-month-old file is weaker than a 690 on a 15-year-old one.

Your debts. Every monthly payment counts toward your total debt service ratio: car payments, lines of credit, student loans and support payments. So does the full limit of any credit card or HELOC, whether you use it or not.

Your down payment. Lenders check where it came from and that it's yours. The standard is 90 days of traceable history.

Documents for a pre-approval

There's a separate guide with the full checklist. For a pre-approval, you'll need:

• Government-issued photo ID.
• Proof of income. If you're salaried, a recent pay stub and a letter of employment. If you're self-employed, paid on commission or using rental income, 2 years of T1 General returns and Notices of Assessment.
• 90 days of statements for the accounts holding your down payment.
• A signed gift letter if any of the down payment is a gift, plus proof the money arrived.
• Details of any properties you already own: mortgage statements, property tax bills, and leases if there's rental income.

The most common cause of delay is the wrong version of a document, such as a screenshot instead of a statement, a summary page without the account number, or a letter of employment with no date on it.

How long a pre-approval lasts and what can cancel it

Most pre-approvals hold for 90 to 120 days. When the hold expires, the file gets re-dated. That usually means sending fresh pay stubs and a current bank statement. You don't start over.

These can cancel a pre-approval before it expires:

• Changing jobs, especially into a probation period or from salaried to self-employed work. Moving within the same field with no gap and no probation is usually fine. Tell us before you make the move.
• New debt. A car loan taken out between pre-approval and closing is the classic example. Lenders pull your credit again before funding, and a new $600 monthly payment can cut $100,000 from what you can borrow.
• Moving your down payment around. Consolidating accounts a week before closing restarts the 90-day history.
• Missing a payment on anything, even a small phone bill that's gone to collections.

Between pre-approval and funding, don't change anything about your finances that you don't have to.

From pre-approval to firm approval

Once your offer is accepted, the pre-approval becomes a live application on that property. The lender orders an appraisal or confirms an automated valuation, reviews the purchase agreement and the MLS® listing, checks that your income documents are still current, and issues a commitment.

A few things to know at this stage.

You qualify at the stress-tested rate, which is higher than the rate you pay. Under OSFI Guideline B-20, lenders qualify you at the greater of your contract rate plus 2 percentage points or 5.25%. At a 4.09% contract rate, that's 6.09%. That's why the pre-approval amount comes in lower than your own math suggested.

The appraisal can come in low. If it does, the mortgage is based on the lower of the price and the appraised value, and you cover the difference in cash. This happens more in a fast market, and it's another reason to think carefully before waiving a financing condition.

You have a mortgage once you have a signed commitment. A signed lender commitment with its conditions met is the document that confirms it. Everything before that is an informed, underwritten opinion.

One more practical point. A broker application means one credit inquiry, which we take to a panel of lenders. Applying at 5 banks yourself means 5 inquiries. Credit bureaus already treat several mortgage inquiries within a short window as a single rate-shopping event, so the effect on your score is modest either way.