The Truth Behind Pre-Approvals

Most homebuyers start their journey with a mortgage pre-approval, assuming it’s a green light to shop for homes within that amount. But in reality? That number might be misleading and can quickly unravel if you don’t understand the full picture.

Let’s unpack what that pre-approval actually means and what you still need to consider before making one of the biggest purchases of your life.

Pre-Qualification vs. Pre-Approval: Know the Difference

Pre-Qualification

  • A quick estimate based on self-reported financial info
  • No credit check or document review
  • Good for ballpark figures—but not dependable when it’s time to make an offer

Pre-Approval

  • Based on verified income, credit score, and financial documents
  • Includes a formal letter from your lender
  • More reliable, but still not a guarantee

Important: Even with a pre-approval, lenders can pull back if your financial picture changes or if the property doesn’t meet lending criteria.

The Stress Test: A Financial Reality Check

Canada’s mortgage stress test ensures borrowers can handle future rate hikes by requiring you to qualify at a higher interest rate than your actual mortgage.

Here’s how it works (in plain English): You may be offered a 5.25% mortgage rate, but you’ll have to qualify as if it’s 7% to prove you can afford payments if rates go up.

This rule applies to:

  • All insured mortgages
  • Most conventional mortgages from federally regulated lenders

The result? Your buying power shrinks, sometimes by tens of thousands of dollars.

Budgeting Beyond the Mortgage

The mortgage payment isn’t the finish line; it’s the starting point. To avoid becoming house-rich but cash-poor, budget for these often-overlooked expenses:

  • Closing Costs: Land transfer tax, legal fees, title insurance
  • Property Taxes: Varies by municipality
  • Home Insurance
  • Utilities & Maintenance
  • Condo Fees (if applicable)

 Tip: Aim to keep your total housing costs under 30–35% of your gross monthly income.

Try plugging your numbers into an interactive mortgage affordability calculator to get a real-time sense of what you can afford.

Pre-approvals are a helpful starting point but not the final answer. Understanding your true affordability involves more than just a number on paper. It means accounting for interest rate buffers, hidden expenses, and real-world budgeting habits. If you’re serious about home ownership, arm yourself with more than a lender’s letter. Get informed, be realistic, and plan smart.

Want to learn more? Contact us at 780.792.0009 or charlene@charleneelliot.ca