Toronto Mortgages

Getting Pre-Qualified for a Mortgage

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Rate Commitment
Many Lenders will guarantee an interest for a client while they are shopping for a home. The purchaser is then protected if interest rates rise during this shopping period. This can be an extremely important advantage, it will not only save the borrower money but could also save them from loosing their dream home when they finally find it.

When interest rates rise the amount of mortgage financing a borrower qualifies for can be reduced. It is possible that your maximum affordable mortgage could be thousands of dollars less after an unprotected interest rate spike. This reduction in available financing could very well require you to ante up a larger down payment. If you do not have the additional savings your maximum affordable home price could be reduced.
A rate commitment usually requires a full pre qualification of the applicant. Rate commitments vary from one mortgage lender to another. Some will guarantee the rate for 30 to 60 days or longer. If rates rise during the commitment period the borrower is assured of either the lower of the committed rate, or the rate one day before closing. Some mortgage lenders offer commitments that guarantee the lowest market rate during the commitment period, or the committed rate. Your Mortgage Consultant can pre qualify your with the right mortgage lender and insure your rate commitment meets your needs.

Pre qualification
Pre qualification means that your lender has reviewed and verified all the available financial information detailed in your application and has determined the maximum amount of financing you can afford. A pre qualification is different from a simple rate commitment. A rate commitment is where the lender guarantees that "if" you qualify for a mortgage they will offer the agreed upon interest rate. Agreeing to an interest rate does not require the lender to complete the preliminary underwriting while a pre qualification does.

In order to complete a pre qualification the lender will require all of the information contained in their mortgage application. This will mean that you will have to provide them with most of the documentation necessary for a full mortgage approval. The effort is well worth it as you will then be assured of mortgage financing in the pre qualified amount.

The benefits of being pre qualified include the comfort of shopping for a home within your price range without the risk that complications will arise in the final hour. Also, there are the benefits of being able to make a stronger purchase offer without "subject to financing" conditions. This will allow your Realtor to negotiate harder and reach an agreement before a competing purchaser makes a better cash offer.

Pre qualifications are only subject to the lenders approval of the property, usually determined by an appraisal after a purchase offer has been agreed to. The borrowers income, expenses, credit history and verification of down payment have all been considered in advance.
A pre quantification is simply a calculation of the the amount of mortgage the applicant "may" qualify for. The gross income amounts used are not verified, nor is the applicants employment, credit history or net worth. Pre-quantifications are often confused with a full pre qualification and should be used as a preliminary guide only.

The calculation to determine your maximum mortgage financing is based on your income and expected expenses. Assume you and your co-applicant have a combined monthly gross income of $5,000. If the mortgage lenders maximum GDSR is 32% you can spend $1,600 on shelter costs. In this case your maximum shelter cost payment is $1,600. By subtracting the monthly heating costs, condo maintenance fees, and property tax cost from the applicants maximum payment the lender can then determine the maximum mortgage payment.

Given this maximum mortgage payment figure the lender can easily calculate the maximum amount of financing you will qualify for based on your income. The procedure is simply the reverse of calculating a mortgage payment given the payment amount, amortization and interest rate.

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