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What is a mortgage pre-approval?

September 1, 2023
min read

Not sure how big of a mortgage you can afford? A pre-approval tells you exactly that - it takes the guesswork out of house hunting and budgeting.

Couple looking at house

When you find the perfect home, you want to be ready for it. And if you’re competing with other buyers, you need to ensure your offer is competitive!

One way to do that is to get a mortgage pre-approval before you start searching for a home.

“The primary reason to get pre-approved is to understand your budget for purchasing a home,” says Chris Saffie, Senior Personal Banking Advisor at Cambrian.

“Without it, you don’t know what price range you’re shopping in or what payments are affordable for you. Pre-approval helps you figure out where you should be.”

“It also helps you understand the process for a mortgage—if you need to put 5% or 20% down, or the difference between variable and fixed interest rates.”

Whether you’re a first-time home buyer or looking for your next home, here’s why you need a pre-approval first:

Mortgage pre-approvals explained

With a pre-approval, you’ll know exactly how much mortgage you can afford and the interest rate you’ll pay on it.

“It also gives you negotiating power and peace of mind. When you put in an offer, you know you’ll be able to proceed with financing,” explains Chris.

“This gives a vote of confidence to the seller that you’ll satisfy the financing condition relatively easily.”

A pre-approval states your maximum mortgage loan amount—in other words, the total amount of money your financial institution will lend you for a home.

Once you get pre-approved, your interest rate is locked in for a period of time. That means if interest rates go up, your rate will still be honoured.

At Cambrian, we offer our Best Rate Guarantee, which means we’ll hold your interest rate for 4 months!

Can you make an offer before getting pre-approved?

You can—but it may not be accepted.

That’s because a pre-approval backs up your offer; it proves that your financial institution is willing to lend you the money for the mortgage. Without this letter, your offer doesn’t hold as much weight.

How long does a mortgage pre-approval take?

“After our initial meeting, we ask for documents we need that are unique to your circumstances,” explains Chris. “Once you provide those documents, we can send the letter within 1-2 business days.”

That’s why you want to have your letter before you start house hunting—because if you find your dream home, another buyer could make an offer while you’re waiting for it!

How long do pre-approvals for mortgages last?

“It will technically last for 12 months—but it’s important we check in every 120 days in case something changes, whether that’s your financial status or the interest rates,” says Chris.

“If rates have gone up, we may need to revise the amount you’re pre-approved for. And if rates are lower, you might qualify for more.”

Once your letter expires, you can apply for another one if you haven’t yet found the right home.

Does pre-approval mean approved for a mortgage?

Not quite! If your offer is accepted, you’ll still need to submit a mortgage application to seal the deal.

What do you need to get pre-approved?

While this will vary based on your financial situation, you can expect to provide:

  • Your 2 most recent paystubs
  • Letter of employment
  • The previous year’s T4 (If you’re self-employed, you’ll need to provide the past 2-3 years of Notice of Assessments from the CRA)
  • 3 months of statements showing the funds you’ll use for down payment and closing costs

What factors affect whether you’ll get pre-approved?

Before you get the green light, your financial institution will consider your unique financial situation.

“We look at the 3 Cs of Credit to determine what amount you’ll get pre-approved for,” says Chris. “Credit, capital, and capacity.”

Credit is your credit score and any debt you may have. Capital is the amount of money you’ll have available for the down payment and closing costs. And Capacity is your income.”

What if you don’t get pre-approved for the amount you’d hoped for?

“There are a lot of reasons why you may not qualify. Based on the issue, we can provide a tailor-made solution to let you know what you must accomplish to get to where you want to be,” says Chris.

“We can offer consolidation loans to lower payments or advice on how to improve your credit.”

Does a mortgage pre-approval affect your credit score?

Yes. During the pre-approval process, your financial institution will do a hard inquiry on your credit score.

This inquiry will affect your credit score; it’s different than the soft check that happens when you check your own credit score. Learn more about credit myths.

The effect on your credit score is temporary and will typically be removed from your report after 2 years.

What’s the difference between a pre-approval and a pre-qualification?

“A pre-qualification is an estimate of what you might qualify for based on parameters you discuss with an advisor or enter into a calculator,” says Chris.

“On the other hand, a pre-approval is more formal. We vet the information and provide confidence that when you put in an offer, we can fulfil the conditions of financing.”

You can apply online for a pre-qualification to get an idea of what you could afford. A pre-qualification doesn’t require a credit check, so it won’t impact your credit score.

If you’re just getting started, our mortgage affordability calculator can give you a clear idea of how much you can afford. Filling out the form will not affect your credit score!

How to increase your mortgage pre-approval amount

You’ve just found out what you’re pre-approved for, and it’s less than you were hoping for. What can you do to raise that number?

  • Increasing your down payment. By putting down more money on your home, you’ll reduce the size of your monthly payments. That means you could afford a bigger mortgage.
  • Decreasing your debt. Money doesn’t grow on trees, but one way to increase your income is to reduce your spending. Are you managing high car payments or credit card debt? It may be worth paying off those debts before you seek a mortgage.
  • Improving your credit score. Whenever possible, avoid missing payments, only utilize 30% of your available credit, and build your credit history.

Should I use the full amount of my pre-approval?

Just because you’re approved to borrow a certain amount doesn’t mean you should!

“If you go for max amount, you might have to give up other areas of life to afford it,” says Chris.

“When you’re looking to establish a purchase price that you’re comfortable with, create a budget and factor all expense that aren’t your mortgage—vacations, hobbies, dining out, and other things you enjoy.”

“You can establish your maximum purchase price based on that.”

You might find that your budget is stretched too thin at the top of your pre-approval amount. Keep in mind all the other unexpected costs of owning a home.

And if you purchase a less expensive home, you might be able to save a down payment of 20%, which saves you on mortgage default insurance.

In addition, you could afford to pay off your house sooner, saving you on interest down the line.

How to get a pre-approved mortgage

The steps to getting a mortgage pre-approval:

  1. Contact a Cambrian Advisor or apply online.
  2. Gather the documents you need.
  3. Start house hunting!

“You can book a meeting with one of our advisors online and have a full-length discussion to understand process,” says Chris.

“We strive to provide personalized advice by looking at your whole financial picture, and seeing if there are other ways we can help you, from a debt loan to investment options.”

At Cambrian, applying for a mortgage is easy, whether you live in Winnipeg or Selkirk. We’re available to meet online or at your branch.

Let’s work together to finance your dream home!

Today’s Rates

*All rates and yields subject to change without notice.
5 Year Variable Closed Mortgage
Variable Open Mortgage
5 Year Fixed Closed Mortgage

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My advisor was prepared for my arrival with all the documents ready and waiting. He took the time to go over each one...”

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