A preapproval letter is an excellent starting point, but it does not yet confirm financing for any property. The lender must still validate the final file, documents and selected property.
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Key takeaways
- Preapproval is conditional.
- Prequalification is generally an initial estimate based on information declared by the borrower.
- The property serves as security for the lender.
What should you ask before relying on your letter?
Preapproval is conditional. When comparing two letters, check what the lender reviewed and which conditions remain outstanding, rather than just the amount shown.
- Review : have income, debts and the source of the down payment been documented?
- Scope : does the amount refer to the maximum loan or the intended purchase price?
- Expiry : how long do the letter’s conditions and any rate hold remain valid?
- Property : what documents and appraisal will still be required for the selected home?
Prequalification and preapproval: two different levels
Prequalification is generally an initial estimate based on information declared by the borrower. It helps establish a range, but the lender may not yet have verified income, debts, credit and down payment.
Preapproval generally involves a more complete review and may state a maximum amount and conditions. Since terms vary among lenders, buyers should ask what was verified and what remains conditional.
The property must also be approved
The property serves as security for the lender. It may request an appraisal and review the building type, condition, insurability, major work or condominium documents.
An offer above the recognized value may require additional cash. Some buildings or condominium files may also fall outside a lender’s policies even when the buyer is preapproved.
The financial situation must remain stable
A new vehicle loan, higher credit use, an employment change or a smaller down payment can affect borrowing capacity. Buyers should consult their mortgage professional before making a major financial decision.
My previous experience as a mortgage specialist at RBC helps me identify questions that should be clarified and coordinate professionals. Mortgage approval and advice remain the responsibility of the lender or licensed mortgage broker.