When it comes to mortgage pre-approvals, the lender’s approach to under writing the application is always different than if you were to formally apply for a mortgage approval.
Firstly, it is important to note that the mortgage institutions have limited resources and therefore cannot review every pre approval application as thoroughly as actual mortgage applications. This is mainly due to the fact that at the pre approval stage, borrowers do not have an accepted offer to purchase a property and since there is nothing to purchase at this stage, the underwriters cannot truly approve a mortgage on a specific property.
It is important to note that a mortgage pre approval is treated as a purchasing tool for potential home owners to assess their purchasing power. The lending institutions relay on the face value of borrower income/s and credit to determine the maximum mortgage that they can carry. For example, they would take your unverified income and credit score (no in-depth analysis of the actual history) and determine the mortgage affordability based on the maximum limits of debt servicing ratios allowed. The potential home owners would then use this information to find a home within their budget, with the added value of a “locked rate” for a determined period of time (varies).
Since a pre approval lacks a thorough review of the application including document verification, down payment confirmation, appraisal of the property, etc., they should not be treated/considered as actual approvals when making a purchasing decision. Its for this reason, that we always caution our clients to include a “condition of financing” in their purchase offer to protect themselves in the event that a pre approval does not turn into an actual approval.
If you would like to learn more about pre approval mortgages or have any questions about your specific circumstances, please feel free to give us a call today 905.455.5005