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What is a pre-approval letter for a mortgage?

“Always pick your yard based on your Summer lifetstyle.”


February 1, 2018 - Karl Yeh

In the mortgage pre-approval process, what exactly is a pre-approval letter? Why do you need it? How do you get one? When should you get it? What to look for in the letter? In this episode, we explore these questions so you know what to do with the pre-approval letter during your next home purchase. 


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Karl Yeh:

Hi everyone, and welcome to another addition of Homebuyer's School. Today I'm joined by Mujtaba Syed, Manager - Mobile Mortgage Specialist with TD Canada Trust. .

Today the question we're going to answer is: What does a preapproval letter mean and what actually determines that letter?

So Mo:

What is a preapproval letter?

Mujtaba Syed:                  

A preapproval letter is technically your approval letter.

It's once you've gone through the preapproval process, [00:00:30] you've gone through the application process, and you have been pre-approved now.

It's technically a letter kind of stating that, kind of summarizing the whole conversation you might have had with that lender or a breakdown of your amounts that you were pre-approved for.

It might even have some of that CMHC (Canada Housing Mortgage Corporation) or the insurance portion of it.

 It will kind of tell you a little bit about the insurance parts.

So, in Canada, if you're putting less than 20% down, it is absolutely mandatory that we go with something called default insurance, which is something [00:01:00] that banks kind of require.

It's something that kind of safeguards them and safeguards the real estate industry if there is a default, that it is taken care of.

So your mortgage letter, or your annual mortgage especially, should be able to discuss that with you during the whole process. It will actually have that breakdown.

A pre-approval letter will also have the interest breakdown, the one that you've just got, so there's no confusion. There is no mistakes, it will have that, and it will actually be signed by the lender.

There might be some conditions [00:01:30] on there that you might need to fulfill after the preapproval.

There might be conditions regarding the application, the process that you had discussed, some things you might need to work on. Those could also be on that letter.

How to finance your home

How long does the letter last for?

Mujtaba Syed:                  

The letter will have an expiry date on it, which is technically the same amount as your preapproval, which should last about 90 days.

Karl Yeh:                              And who would need that preapproval letter?

Mujtaba Syed:                  

Nowadays, a lot of real estate agents, agents, brokers, [00:02:00] builders who are working for you to help you find that perfect home, might require that letter.

Once again, it just strengthens exactly what you're looking for.

It will help them make a decision for you, and find you the perfect home.

It also might be able to answer any questions that they might have, to see how ready you are to be able to purchase.

Karl Yeh:                             

So should you get that letter before maybe talking to a salesperson, with a builder, or even a real estate agent?

Is that kind of the first thing that you want get?

Mujtaba Syed:                  


I would definitely recommend doing that, [00:02:30] is getting that.

So once you are going to talk to that salesperson, that builder, or a real estate agent, you already know how much you're going to get pre-approved for.

Then they can start showing you. It definitely cuts down their time, it definitely speeds up the process. There might be just an amazing house out there for you.

We want to be able to get you that house right away, so that way, it makes it easier for everyone to have that letter, so you can present it.

So even when they are finding you that home, they feel confident in finding you that home.

Karl Yeh:                             

Great, do you have anything [00:03:00] else to add in terms of preapproval letters?

Mujtaba Syed:                  

No, make sure, definitely, that it's signed.

It has all the conditions, all the terms that you had discussed with the specialist.

Make sure you're looking at the interest rates, because that's very important.

Make sure that it's the interest rate that you had agreed upon with the lender or the specialist at that time.

If there's any discrepancies, make sure you notice that, and actually point that out right away.

There might be some things that maybe were missed during the preapproval process that could really impact your approval at the end.

We want to make sure that once you get that letter, [00:03:30] you've read it very thoroughly, and you're okay with everything on that letter before you proceed.

Karl Yeh:                             

Perfect. Well, thank you very much Mo. Thank you, very much everyone, for joining us. And we'll catch you next time.


Your turn:

Let us know if you have additional mortgage questions or home buying questions that we can answer by submitting them in the comments section below. 

Homebuyer's School publishes new content weekly so subscribe or check back regularly for the latest information, strategies and tips from homebuying experts. 

About Mujtaba Syed:

Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.

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