The Canadian real estate scene is quickly approaching the closest thing to a buyer’s market we have seen for a long time. As early as two months ago, you’d have faced stiff competition if you wanted to purchase a house. Many buyers had to bid hundreds of thousands of dollars over asking to have  a shot at success. 

Now, after a series of interest rate increases, the Canadian market has dramatically slowed. By the numbers, we can’t exactly call it a balanced market, at least not yet. With two months of inventory available, conditions still favour sellers at the moment. But for buyers, things are definitely looking up. There are far more listings to choose from, which provides a little more negotiating power. Now, you can often get your offer accepted at the list price or even a little below.

Real estate can be unpredictable, but these articles may help answer your questions:

• Our Guide For First-Time Buyers
• Are Conditional Offers Making A Comeback?
• The Market Is Changing. Is Real Estate Still A Good Investment?

As conditions swing more in favour of buyers, it may be a good time to review some of the most common terminologies you should know.

Two terms you will often encounter are pre-qualification and pre-approval. They are sometimes used interchangeably, but they are very different. What do they mean, and which one gives you a better chance of placing a winning bid?

Pre-Qualification

Getting a pre-qualification is easy. You can go online to any of the major banks to complete the process, which only takes a few minutes. You’ll submit basic information about your income, marital status and personal assets. Based on your answers, the bank will give you a rough estimate of how much of a mortgage you may be able to qualify for.

It’s important to remember that a pre-qualification isn’t 100% accurate because it does not verify the data you enter. The lender gets only basic information and isn’t performing a credit check or looking closely at your financial history.

Why bother with a pre-qualification when it doesn’t seem to hold much weight? It depends on where you are in the buying cycle. Getting a pre-qualification is a helpful first step if you’re in the beginning stages or just starting to think about buying.

When you’re done, you’ll have a quick snapshot of what you might be able to afford based on your current financial situation.

• For example, if you earn $25,000 a year and the average house in your area costs $1 million, you might be facing an uphill battle.
• If you’re earning $120,000 and a house costs $400,000, your chances are much higher, barring a heavy debt load or poor credit history.

If you want to buy a house quickly and have done some research and preliminary work, you might decide to skip a pre-qualification altogether. In this case, you can go straight to getting pre-approved.

Pre-Approval

A pre-approval shows that you mean business about buying a home. It provides the lender with much more in-depth information and is more involved than a pre-qualification.

Your lender will ask you to complete an official mortgage application, and you’ll have to supply documentation to verify your identity, income, assets and debts.

You will also have to pass a credit check.

Once a thorough investigation is complete, you’ll have an accurate picture of how much you can borrow and what kind of home you can afford.

Your pre-approval is usually good for 90 to 120 days, which protects you from further interest rate increases. If you run out of time, you may be able to get an extension but could lose the interest rate protection.

After your application, it could take a few days for your pre-approval to go through. It may take longer if you are self-employed or have a complicated credit history.

Once the lender is satisfied with your ability to repay, they will write you a letter of pre-approval. With this letter in hand, you can now start searching for your new home!

You can place offers up to the maximum amount of your loan, plus whatever down payment you have saved.

A Pre-Approval Is Not Guaranteed

A written pre-approval is a commitment by the bank based on your current financial position. However, it’s crucial to remember that it is not guaranteed. If anything changes in your life, the bank can refuse your mortgage. For that reason, we recommend holding off on other major purchases, such as cars, vacations or furniture. And if possible, avoid switching jobs until the transaction is complete.

Pre-qualifications and pre-approvals are just two concepts you should understand before buying or selling. Here are a few other things you should know:

• What Happens When A Buyer Breaches Their Contract?
• Deposit Vs Down Payment: What’s The Difference?
• Conditions & Clauses On A Real Estate Purchase

Why Is Getting Pre-Approved So Important

A pre-approval will give you a serious advantage if you intend to buy a house within the next few weeks or months, especially in a competitive market with multiple buyers.

A pre-approval in advance helps you craft a compelling offer that sellers are likely to accept because you can remove the financing condition.

Once a seller accepts your offer, the full mortgage process begins. Not to worry, however. You have already completed most of the work involved. All you need to do now is start planning your move into your brand new home! 

No matter what stage of the home buying process you’re in, we can help! You can book a free meeting with us here, and we will happily answer any questions you have.