Would-be buyers armed with the document may find the process much easier to navigate
The spring real estate market typically sees heightened activity, renewed opportunities and fierce competition among buyers and sellers. Spring brings better weather and usually an influx of new listings, and prospective buyers often see it as the optimal time to make a move.
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But preparation is key, especially in a competitive market, where improving conditions can make it even more enticing.
Since September 2023, mortgage interest rates have continued to ease from their peak. On average, this has increased borrowing capacity by approximately 16.5 per cent as of January 2025. Did you know that as of December 15, 2024, first-time homebuyers who have a down payment of less than 20 per cent can amortize a mortgage up to 30 years, up from 25?
In combination with lower rates, the extended amortization will increase borrowing capacity by 27 per cent over the September 2023 qualifying criteria. In other words, someone who qualified for a $600,000 mortgage in September 2023 may now qualify for one as high as $775,000, a significant increase in buying power.
In this environment, a critical first step for buyers is to secure a written mortgage pre-approval, a tool that can help them navigate the market with confidence, secure favorable terms and achieve their homeownership dreams. Not only will this make house-hunting more efficient, real estate agents and sellers will take them more seriously.
A pre-approval from a lender states that you qualify for a certain amount based on your financial circumstances. This differs from pre-qualification, which provides a rough estimate of your borrowing power without a comprehensive financial review. A pre-approval is more thorough and includes:
Income verification
Lenders review pay stubs, tax returns and other income documentation to assess your earnings.
Credit check
Your credit history and score are critical factors in determining loan eligibility and interest rates.
Debt-service ratio
Lenders evaluate your monthly financial obligations relative to your income to ensure you can manage a mortgage.
Asset Review
Savings accounts, investments and other assets are considered to confirm you have sufficient funds for a down payment and closing costs.
Once approved, the lender provides a pre-approval letter specifying the loan amount and conditions. This document is valid for a limited time, typically 90 to 120 days.
In a fast-paced market, a mortgage pre-approval offers several advantages.
Determining your budget
Knowing your borrowing limit helps narrow your search, ensuring you focus on properties within your price range.
Strengthening offers
Sellers may be more likely to accept offers from pre-approved buyers, viewing them as financially reliable.
Expediting the process
With financial vetting underway, pre-approved buyers can move quickly once they find a property.
Locking in Rates
Some lenders allow you to lock in an interest rate during the pre-approval process, protecting you from potential increases while you search for a home.
Improving real estate conditions can create a sense of optimism for buyers entering the market, especially those who may have been sidelined over the past couple years due to affordability challenges.
Even with a mortgage pre-approval, a “condition to financing” clause is recommended within the purchase contract, since the lender still needs to evaluate a property as suitable collateral before it can issue a final approval for a loan.
Often, the lender is required to order an independent real estate appraisal to validate suitability as collateral, marketability and adequate lending value are commensurate with the purchase price.
Mortgage pre-approvals are not just a preliminary step in the homebuying process, they are a strategic move that can significantly impact the entire transaction. Whether you’re a buyer looking to enhance your negotiating position or a seller seeking a reliable buyer, the value of mortgage pre-approvals is undeniable. In a vibrant real estate environment, where timing and confidence are paramount, a pre-approval can be the key that unlocks the door to homeownership.
Randy Chin, RBC Regional Manager, Residential Mortgages. Follow Randy on X and Instagram @rbcrandychin