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In fast-paced markets, a mortgage pre-approval can be essential for closing the deal. But it doesn’t mean your mortgage will be approved.

In the client's eyes, the condo was perfect. With its sprawling terrace and ample light, she was ready to move in.

But there was a problem. She hadn't taken her real estate agent's advice to get mortgage pre-approval. As a result, she put in a low offer that was rejected by the seller, who went on to accept another bid.

The bitter irony was that the amount for which the client was ultimately pre-approved would have been enough to put her in her dream home, says Vancouver realtor Colette Gerber.

Such outcomes are not uncommon in today's fast-paced markets, where homes for sale can attract multiple offers, says Robert McLister, a mortgage planner with intelliMortgage Inc. and founder of, a mortgage rate tracking service.

Pre-approvals have many benefits, including 90- to 120-day rate guarantees that provide protection if interest rates increase during your search. There is no cost, and if you find a better mortgage along the way, there is no obligation to ultimately use the lender that provides the pre-approval.

"It gives you the confidence to go in and make an offer," says Mr. McLister, who adds that realtors and sellers may also take your offer more seriously.

Mortgage pre-approval should never be a substitute for a subject to financing clause in an offer you make, he stresses. "In highly competitive markets such as Toronto or Vancouver, some real estate agents advise you to present an offer with no conditions. You need to ignore that advice and protect yourself, unless you know you're not overbidding, the property is problem-free and you know you can get financed."

"You never know what can happen. A lender may find something they don't like in the appraisal. Or you may not be deemed a good credit risk. Or there could be legal or financial problems in the strata council's minutes that scare away lenders."

- Robert McLister
is a mortgage planner with intelliMortgage Inc. and founder of

It is essential buyers understand that pre-approval is not final approval, Mr. McLister cautions. In the pre-approval process, some lenders will confirm your qualifications and documentation, including your income, down payment and debt load. Others will simply guarantee you a certain interest rate for a stated period, contingent on qualifying when you have a real purchase offer in hand.

"You never know what can happen.  A lender may find something they don't like in the appraisal. Or you may not be deemed a good credit risk. Or there could be legal or financial problems in the strata council's minutes that scare away lenders."

Missing bill or credit card payments, adding on debt, changing jobs or co-signing for someone can also render a pre-approval worthless.

Borrowers with less than a 20 per cent down payment have another consideration: they need mortgage insurance. The problem is, insurers don't even look at pre-approvals. They can reject a mortgage application for any number of reasons, he says, leaving the would-be buyer without a subject to financing clause at risk of losing their deposit or even being sued.

With real estate prices rising every year, first-time buyers are increasingly relying on their parents to help contribute to the hefty down payments required. Mr. McLister says parents should make sure their help is an outright gift rather than a loan. Otherwise, any loan payments, which must be disclosed to the lender, are factored into the debt service calculation and can reduce the amount the buyer can borrow.

Finally, peace of mind may come at a price. Pre-approved mortgages can come with interest rates up to 0.25 per cent or more above the lowest market rate. "On the other hand, it can be cheap insurance if rates soar before you close," he says.

My Advice

“The Hamilton market is one of the hottest in the country right now. Homes are being snapped up very quickly, leading to higher prices and more competition.

My usual advice is to always look at a variable mortgage, because historically you’ll save roughly a full per cent. However, seeing where fixed mortgage rates are currently, my advice – especially for first-time homebuyers – is to get into a five-year fixed term.

We also advise first-time buyers to plan for interest rates that are a little bit higher come term renewal. If they’re going to pay 2.79 per cent right now, for example, we’re going to try to qualify them at four per cent so we’ve already built in a buffer for them.

Most of the time, a variable mortgage tends to be my first choice. It gives a bit more flexibility – you can set your payments pretty well as high as you wish to pay off more principal. Enjoy the low interest rates, but pay off more principal during this time.”

Trevor Daly

Trevor Daly
is an award-winning mortgage broker and president of DLC Home Capital Solutions Inc., which serves Burlington, Oakville, Mississauga and Guelph-Waterloo.

This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail's advertising department. The Globe's editorial department was not involved in its creation.

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