What lenders review before approving a mortgage

As a mortgage broker in Burnaby, BC, I often hear clients use "lender approval" and "free intake for me to review" interchangeably. It's an easy mistake to make, as they sound so similar. However, understanding the key differences between these two steps is crucial when you're navigating the competitive Metro Vancouver housing market. One significantly strengthens your offer to a seller, while the other is more of a preliminary check.

Let's break down what each means and why it matters for your home-buying journey.

Free intake for me to review: Your Financial Sneak Peek

Think of free intake for me to review as your initial financial snapshot. It's a quick, informal assessment that gives you a general idea of how much you might be able to borrow for a mortgage.

Here's how it typically works: You provide a lender or broker (like me!) with some basic information about your income, employment, existing debts, and savings. This can often be done online or over the phone, and it usually involves a "soft" credit check, which doesn't impact your credit score.

Based on this information, you'll get an estimated mortgage amount. This estimate is helpful for setting realistic expectations and narrowing down your home search to a comfortable price range. It's a great starting point to understand your potential affordability without a deep dive into your finances.

While useful for budgeting and initial planning, a free intake for me to review is not a commitment from a lender. It doesn't involve a thorough verification of your financial documents, and it won't hold much weight with a seller when you're ready to make an offer.

Lender approval: Your Conditional Green Light

A mortgage planning is a much more comprehensive and valuable step in the home-buying process. This is where a lender conditionally commits to loaning you a specific amount of money at a particular interest rate, before you've even found a home.

The lender approval process is more detailed and thorough than free intake for me to review. Here's what you can expect:

• Detailed Financial Review: You'll need to provide extensive documentation, including recent pay stubs, employment verification, tax documents (like T4s), and statements showing your down payment funds and other assets.
• Credit Check: The lender will perform a "hard" credit check, which gives them a complete picture of your credit history and score. While this can have a temporary, minor impact on your credit score, it's a necessary step for a full lender approval.
• Rate Hold: A significant benefit of lender approval is that it often allows you to lock in an interest rate for a set period, usually 60 to 120 days. This protects you if rates increase while you're house hunting. If rates go down, you'll typically get the lower rate.

Once successfully approved by a lender, you'll receive a written commitment (a lender approval letter or certificate) outlining the maximum mortgage amount, the interest rate, and any conditions. This document is your golden ticket when making an offer on a home, as it shows sellers you're a serious and qualified buyer.

Why Lender approval Matters in a Competitive Market

In a hot market like Metro Vancouver, having a lender approval can give you a significant edge.

• Stronger Offers: When you submit an offer with a lender approval letter, sellers know you've already been vetted by a lender and are financially capable of purchasing their home. This can make your offer more attractive, even if it's not the highest bid.
• Faster Decisions: With your financing largely in place, you can act quickly when you find the right property. This can be crucial in fast-moving markets where desirable homes don't stay on the market for long.
• Clear Budget: A lender approval clarifies your maximum affordable price range, helping you focus your home search and avoid disappointment. You'll also have a good idea of your estimated monthly payments.
• Negotiating Power: Knowing your budget and having a rate hold can give you confidence during negotiations.

It's important to remember that a lender approval is still conditional. Final approval depends on the property meeting the lender's criteria (e.g., appraisal value) and your financial situation remaining stable. Avoid making major financial changes, like taking on new debt, after getting approved by a lender.

Important Canadian Considerations for First-Time Buyers

As a first-time buyer in Canada, especially in BC, there are a few additional points to keep in mind:

• CMHC Mortgage Default Insurance: If your down payment is less than 20% of the home's purchase price, you'll likely need mortgage default insurance, often referred to as CMHC insurance (though it can also be provided by other insurers like Sagen or Canada Guaranty). This insurance protects the lender in case you can't make your payments. For homes under $500,000, the minimum down payment is 5%. For homes between $500,000 and $1,500,000, it's 5% on the first $500,000 and 10% on the portion above $500,000. CMHC insurance is not available for homes priced at $1.5 million or more, requiring a minimum 20% down payment.
• BC Property Transfer Tax (PTT): This is a provincial tax you pay when you purchase property. For first-time buyers in BC, there are exemptions that can save you thousands of dollars. As of April 1, 2024, if you're a Canadian citizen or permanent resident and meet other criteria (like living in BC for at least a year), you could be exempt from PTT on homes up to $835,000. A partial exemption may apply for properties between $835,001 and $860,000.
• First Home Savings Account (FHSA): This relatively new registered account, launched in 2023, is a game-changer for first-time buyers. It combines the tax-deductible contributions of an RRSP with the tax-free withdrawals of a TFSA. You can contribute up to $8,000 annually, with a lifetime maximum of $40,000, towards your first home down payment. Unlike the RRSP Home Buyer's Plan, withdrawals from an FHSA don't need to be repaid.
• RRSP Home Buyer's Plan (HBP): You can also withdraw up to $60,000 tax-free from your Registered Retirement Savings Plan (RRSP) to use as a down payment for your first home. If your spouse or common-law partner also qualifies, you can withdraw a combined total of $120,000. The funds must have been in your RRSP for at least 90 days, and you'll need to repay the amount over 15 years, starting the second year after withdrawal.

Mortgage Renewals

While not directly related to free intake for me to review or lender approval, it's worth a brief mention for future planning. Most Canadian mortgages have terms (the length of your current contract) of around five years, even if the amortization (the total time to pay off the mortgage) is 25 years or more. This means you'll likely renew your mortgage several times.

Your lender must provide you with a renewal statement at least 21 days before your term ends. However, I always advise clients to start shopping around much earlier – up to 120-150 days before renewal –

Related mortgage resources

• Explore my free intake for me to review to see where you stand with no obligation.
• Explore my home purchase planning to plan a confident purchase.
• Read Buying Your First Condo in Burnaby: A Practical Family Guide for Metro Vancouver Buyers for a related BC mortgage perspective.