Fueled by low residential mortgage rates, the Canadian real estate market continues to grow at a red-hot pace with housing starts reaching a 14-year high in 2003 (CMHC Housing Outlook, 4th quarter national edition).  As homebuyers compete for properties and demand continues to outweigh supply in many markets, the importance of obtaining a mortgage pre-approval and lining up the necessary documents prior to house hunting has never been greater.

A recent survey by the Canada Mortgage and Housing Corporation (CMHC) and the Canadian Institute of Mortgage Brokers and Lenders (CIMBL) reveals that many consumers take advantage of pre-approvals, with 69 per cent having their mortgage pre-approved before buying a home.

What a pre-approval is…
A pre-approval is the process of determining how much money a prospective homebuyer will be eligible to borrow prior to a formal application for a mortgage loan, based on information they have provided.  With a pre-approval, you’ll get a clear sense of how much you can afford, and you’ll be assured of a particular mortgage rate.  With a locked-in rate, there is no risk of any interest rate increases while you are house hunting.  The good news for those who turn to a mortgage broker is that a broker may be able to obtain a longer pre-approval rate hold.

What a pre-approval is not…

• A pre-approval is not a rock-solid guarantee of financing.  The property - along with your supporting information (such as income, down payment and employment history) – still has to meet the financial institution's lending criteria. 
  
• A pre-approval does not eliminate the need to make a conditional offer. 
  
• Also, a pre-approval does not take into account all closing costs; you will need to consider other expenses such as inspection fees, appraisal fees, legal fees, land survey or title insurance, land transfer tax and moving costs.

Mortgage brokers are emerging as the primary source for mortgage pre-approvals…
The CMHC and CIMBL survey indicates that pre-approvals through brokers are up from seven per cent of all purchasers in 2002 to 22 per cent in 2003, a strong signal that consumers are thinking of the mortgage brokerage alternative first when the need for financing arises. 

Because mortgage brokers are specialists, they are experts on what homebuyers must know when buying a home and can help navigate the process successfully from start to finish.  A mortgage broker can shop the market for the best interest rate, length of rate hold, and credit availability to maximize your purchasing power.