Quick take: what a mortgage pre-approval actually does
A mortgage pre-approval is a lender's (or broker + lender's) documented snapshot of what you can likely borrow based on your income, debts, down payment, and credit - before you pick a property. In Canada, lenders may also offer a rate hold for a limited period so you can shop with more certainty.
Important nuance: lenders use different terms and steps (preapproval, prequalification, preauthorization). Always confirm what was verified (income? down payment? credit?) and what conditions still apply before you rely on it.
Pragmatic rule: treat your pre-approval like it's a live deal. If the lender would need it to fund, you should document it now - not after your offer is accepted.
- A strong pre-approval validates income, debts, down payment sources, and stress-test affordability.
- It is not a final approval - the property and your documents are still reviewed at underwriting.
- Use the rate hold to protect against rate spikes, but keep a buffer so you do not overbuy.
Pre-approval vs pre-qualification vs final approval
These terms get mixed up in the market. Here is the practical difference:
If you are writing offers, you want something closer to a verified pre-approval - not just a self-reported estimate.
- Pre-qualification = quick estimate (often self-reported).
- Pre-approval = lender reviews key inputs (often includes a credit check).
- Final approval = lender underwrites you + the specific property (appraisal/title/conditions).
The 7-step mortgage pre-approval process in Canada
Most lender workflows follow the same core steps. The speed comes down to document quality and clarity (especially for variable income, self-employed, gifts, or large deposits).
If you want a fast, clean pre-approval, the goal is to make underwriting boring: consistent income, explainable down payment, and stable debt.
- 1) Set a comfortable payment target (not just a max purchase price).
- 2) Gather income + down payment documents (see checklist below).
- 3) Run credit + confirm liabilities (loans, LOCs, credit cards, support payments).
- 4) Validate debt-service ratios (GDS/TDS) and the stress test qualifying rate.
- 5) Issue a pre-approval / preauthorization with stated conditions.
- 6) Shop for a home inside your buffer zone; avoid new debt.
- 7) After an accepted offer, complete final underwriting (property + updated docs).
Mortgage pre-approval document checklist
Different lenders ask for different documents, but the categories are consistent: identity, income, debts, and down payment (with a paper trail).
If you are self-employed, commissioned, or have multiple income streams, expect extra steps: lenders often want a longer history and clearer documentation.
Pro tip: if any down payment money is gifted, document it early so it does not become a last-minute condition.
- ID: government photo ID for all applicants.
- Income (employee): recent paystubs + employment letter; T4s/NOAs when required.
- Income (self-employed): NOAs, T1s, financials depending on lender and structure.
- Down payment: bank/investment statements showing the source and history; gift letter if gifted.
- Debts: statements for loans/LOCs; confirm minimum payments.
- If purchasing: MLS listing + offer details once you have a property.
How lenders calculate your max: income, debts, GDS/TDS, and the stress test
Pre-approval is not just income times a multiplier. Lenders look at cash flow using debt-service ratios:
GDS (gross debt service) compares your housing costs to gross income. TDS (total debt service) adds your other monthly debt payments. Government of Canada guidance commonly uses 39% (GDS) and 44% (TDS) as affordability guidelines, but lender policies can differ by product and borrower profile.
Then the stress test: for many mortgages you must qualify at the higher of your contract rate + 2% or a benchmark rate (OSFI's minimum qualifying rate for uninsured mortgages is currently the greater of contract + 2% or 5.25%).
- Housing costs can include: mortgage payment, property taxes, heating, and (often) 50% of condo fees.
- Your max approval changes if your debts rise, your income is averaged lower, or rates move.
- Always leave buffer: qualification does not equal comfort.
How long does a mortgage pre-approval last?
In Canada, lenders may lock in an interest rate for a limited window - often described as a rate hold. Government of Canada guidance notes rate holds can range from about 60 to 130 days depending on the lender.
Two practical reminders: (1) a rate hold does not freeze your entire file forever - your final approval still depends on documentation and the property, and (2) if your pre-approval expires, you will usually need an update (and sometimes another credit check).
- Treat the rate hold as downside protection, not permission to stretch your budget.
- If you are shopping longer than the hold period, plan an update point so you are not rushing right before closing.
What can ruin a pre-approval before closing
Most last-minute declines are not mysteries - they are changes. Underwriting is a snapshot; if the snapshot changes, so can the decision.
Avoid these common triggers between pre-approval and funding:
- Taking on new debt (car loans, financing furniture, new credit cards).
- Changing jobs or moving to variable/contract income without a plan.
- Missing payments or carrying higher revolving balances.
- Large unexplained deposits (cash or e-transfers) with no paper trail.
- Co-signing someone else's loan or adding new support obligations.
How to use a pre-approval to buy smarter (and negotiate better)
A strong pre-approval is leverage - but only if it is realistic. The best buyers use it to set a confident range, not a reckless maximum.
Use these pragmatic moves:
- Set your target payment first, then back into price (run /calculators/payment and /calculators/affordability).
- Model the stress test (run /calculators/stress-test) so you understand sensitivity.
- Plan cash-to-close (run /calculators/closing-costs and /calculators/cash-to-close).
- Write offers with timelines that match lender turnaround + appraisal windows.
What a mortgage pre-approval letter should include (sample)
Pre-approval letters vary by lender, but a useful one typically includes the applicant name(s), a maximum purchase price or mortgage amount, an expiry/rate-hold date, and key conditions.
Sample (for structure only):
"This letter confirms that [Borrower Name(s)] has been pre-approved for financing up to $[Amount] subject to lender underwriting, satisfactory appraisal, acceptable property, and verification of income, down payment, and credit. This pre-approval is valid until [Date]. Interest rate and terms are subject to change if borrower information changes or conditions are not met."
- If your letter does not list conditions, ask for them in writing.
- If it does not mention expiry/rate-hold, confirm the timeline.