Mortgage Pre-Approval in Toronto: What Home Buyers Need to Know
What Is a Mortgage Pre-Approval?
A mortgage pre-approval outlines the mortgage loan amount you qualify for based on an assessment of your financial situation (i.e., debt, credit score, income). It gives you a realistic budget and signals that you’re a serious buyer, giving you a leg up with sellers during the house-hunting process.
Pre-approvals also lock in your interest rate for up to 120 days, so it’s best to get pre-approvedl before you start your home search, but only if you’re serious about buying within the next two to three months.
How a mortgage pre-approval works
A mortgage pre-approval represents a preliminary confirmation of how much you can borrow for your mortgage and the interest rate you may qualify for. During the pre-approval process, lenders analyze your financial situation to determine how much you can afford, and lock in your interest rate for up to 120 days.
Who is involved in a mortgage pre-approval?
There are three main parties involved in a mortgage pre-approval: the buyer (you), a mortgage broker, and a lender.
The buyer (you): Is responsible for providing the documents required to verify income, employment, down payment source, and outstanding debts. Documents must be accurate and complete, employment must be maintained, and new debt must be avoided.
The mortgage broker: Acts as an intermediary between you and lenders to review your documents, compare mortgage products across different lenders, and submit an application to a lender that best fits your profile and goals.
The lender: Is the institution that will lend you the mortgage. They access your income stability, employment status, credit score, debt ratios, and more to determine your maximum loan amount and interest rate.
How Lenders Assess Your File
Lenders generally assess four core components when reviewing your pre-approval application:
Income: Lenders want to confirm you have a reliable, ongoing source of income that can support your mortgage payments. They look at your employment type, income level and stability over time, length of time with your employer, and other crucial factors that impact your income. Note that your income determines how much mortgage you qualify for based on federally regulated affordability ratios.
Credit: Your credit score indicates your reliability as a borrower. Lenders look at your credit score, payment history, current balances and lines of credit, past bankruptcies or collections, and the length of your credit history. A higher score can qualify you for a better interest rate, higher loan amount, or more mortgage product options.
Debt ratios: Lenders use Gross Debt Service Ratios (GDS) and Total Debt Service Ratios (TDS) to determine whether your income can safely support your housing and debt expenses. GDS measures housing costs only, such as mortgage payments, heating, property taxes, and condo fees. TDS measures all debt combined, including housing costs and things like car loans, student loans, or personal loans. Most lenders want a GDS that is less than or equal to 39%, and a TDS that is less than or equal to 44%.
Mortgage stress test: The stress test ensures you can afford your mortgage even if interest rates rise. With this said, you must qualify at the higher of the mortgage contract rate plus 2% or the bank of Canada qualifying rate. The stress test prevents borrowers from becoming overstretched if rates increase.
What documents do you need for a mortgage pre-approval?
To process your mortgage pre-approval application, your mortgage broker will collect a series of documents to verify your identity, employment, income, down payment and closing cost proof, and debt and liability.
Here’s a full breakdown of the documents required for a mortgage pre-approval:
Identification: Two Pieces of Government-Issued ID: For each applicant (e.g., driver’s license, passport, PR card).
Two recent pay stubs: Must show year-to-date earnings.
Job letter: Dated within 30 days, confirming position, salary, and employment status.
Two years of T4s: For 2024 and 2023.
Two years of NOAs (Notice of Assessments): For the past two tax years from the CRA.
Two years of T1 generals: Personal tax returns for the past two years.
Three months of personal bank statements: Showing consistent income deposits.
Three months of salary account statements: If paid into a separate account.
Gift letter: If a family member is giving funds.
Investment or savings statements: From RRSPs, TFSAs, GICs, etc.
Proof of closing availability: Proof that you have at least 1.5% of the purchase price saved for closing costs.
Credit report copy: A recent full report from Equifax or TransUnion.
Credit card statements: Showing current balances and required monthly payments.
Car loan or lease agreements
Child support or spousal support documents (if applicable)
Business owners and self-employed individuals must also provide:
Six months of business bank statements: Showing regular business activity.
Business license or incorporation documents: Proof of registration or incorporation.
Two years of T2 corporate returns: Required if incorporated.
And if you already own property, you will need to disclose:
Mortgage statement: Most recent statement for your existing property.
Property tax bill: Latest annual statement or proof of payment.
Pre-approval vs final approval: What’s the difference?
The pre-approval mortgage amount gives you an estimate of your potential maximum mortgage amount, but it does not guarantee that you'll be officially approved for that amount. Final approval happens after you submit an offer on property, at which time the lender reviews your file again.
Why your approval amount may change or be declined after pre-approval
Keep in mind that it is possible for lenders to change your approved amount or decline your mortgage request even after you've been pre-approved.
Here are the main factors that could impact your approval amount being changed or declined:
Property type: Different property types (i.e., condos, freeholds, townhouses, etc.) hold different levels of risk for lenders. For example, a condo has fees that may reduce the mortgage amount you qualify for because those fees count toward your debt ratios.
Appraisal value: If the lender’s appraisal value comes in lower than your offer price, the mortgage amount will be based on the appraised value, not what you paid. You may need to increase your down payment to cover the difference.
Changes to your debt: New loans, maxed-out credit cards, or car financing can lower your borrowing power.
Changes to your interest rate: If you haven’t locked in a rate and interest rates rise before your final application review, your affordability will drop and your approved amount may be reduced.
Changes to employment: Switching jobs, reducing hours, or moving from salary to hourly can delay or jeopardize approval. Lenders want employment stability, ideally with no major changes between pre-approval and closing.
However, there are solutions if your approval amount is changed or declined. Alternative options for securing a mortgage include:
Taking on a lower mortgage amount
Accepting a higher interest rate
Providing a larger down payment
Bringing on a co-signer
Avoiding new debts or changes of employment throughout your home buying process
How to strengthen your pre-approval before applying
A strong financial profile is the key to securing the mortgage amount you want, plus the best interest rate. Lenders closely assess your income, debt ratios, and overall financial stability, so preparing ahead of time can make a huge difference.
Here are the best ways to strengthen your pre-approval application:
Improve your credit score: A score of 660 is good, but the higher your credit score is, the better your rates and mortgage amount will be. Focus on on-time payments, lower utilization, and avoid missed bills.
Lower existing debts: Reduce credit card balances, loan payments, or lines of credit to help improve your GDS/TDS ratios.
Save a larger down payment: A higher down payment amount reduces your mortgage balance, improves your ratios, and may help you qualify for more mortgage options. It can also protect you if the appraisal value comes in low.
Avoid job changes or employment gaps: Lenders prefer stability, so consistent employment data (i.e., within the same industry, same role, same hours, same payment schedule) can strengthen your file and keep approval on track.
Avoid new credit pulls: Multiple credit inquiries signal risk, and opening new credit before applying can lower your score or increase your debt.
Avoid new loans or major purchases: Car loans, furniture financing, or large credit card balances can reduce your approval amount even if you’ve already received a pre-approval.
What happens after you get pre-approved?
A pre-approval is the first step of your home buying journey. Once you have your pre-approval amount, you can move confidently to the next steps of house hunting and making offers to secure a home that aligns with your pre-approval budget.
Here’s a general guide for what comes next:
House hunting: Reach out to your agent and start touring homes that fit your maximum purchase price.
Keep documents updated: Lenders may request updated pay stubs, bank statements, or verification letters during the approval process.
Maintain financial stability: Avoid major changes to your income, employment, or debt until after you close on the property.
Stay in close contact with your mortgage broker: They will advise you on product options, updates to your file, rate changes, and next steps once you’re ready to submit an offer.
Keep in mind: You will also need to budget for closing costs! Lenders typically like to see at least 1.5% of the purchase price set aside.
Next steps for your pre-approval
My take? When your financial profile is organized (and your documents and expectations are aligned) you can navigate the market with clarity and confidence, knowing exactly what you can afford.
If you’re preparing to buy within the next 6–12 months and want expert guidance through the pre-approval process, reach out to me on Instagram or book a call below. I’d love to help you get mortgage-ready and move toward your first (or next) home with confidence.
