The Pre-Approval phase in a mortgage application is your starting point on the path to homeownership. It involves meticulous planning, gathering pertinent documents, and making critical decisions. Let's explore the key components of this phase and their significance:

1. Income Documentation: Showcasing Financial Stability

The foundation of your mortgage application lies in demonstrating a stable income. Documents such as recent pay stubs, employment letters, tax returns, and T4 forms provide insights into your earning capacity. These documents offer lenders a clear picture of your financial health and repayment capability. There are many other different income sources that can be used in mortgage applications including rental income, pension income, disability income, investment income and self-employment income.

Keys Aspects of Income Lenders are Looking For:

• Validation of Stability: Demonstrates consistent income, instilling confidence in lenders.

• Enhanced Borrowing Power: Higher income can potentially secure better loan terms.

Difficulties Borrowers May Encounter:

• Limited Income Sources: Diverse income sources might not be fully represented through traditional documents. Income from room mates and AirBNB income are two typical sources of income that are more challenging to work with for most “A” Lenders.

• Self-Employment Challenges: Self-employed individuals might face complexities in proving stable income. With the ability to reduce their income from home offices and automobile usage, self-employed borrowers often have challenges due to the nature of their income.

2. Legal Structure Determination: Crafting Ownership Dynamics

Deciding the legal structure of your property ownership is critical. This involves identifying who will be on the title, considering co-signors, co-borrowers, or family members contributing to the purchase. Legal ownership is critically important for First Time Home Buyers as every borrower is entitled to an exemption of the BC Property Transfer Tax under certain circumstances. This could provide a very significant amount f tax savings to the borrower and should be structured properly if more than one borrower qualifies. We will discuss the Property Transfer Tax and some important tax savings strategies in a future blog post.

Pros:

• Expanded Financial Support: Co-signors or co-borrowers can enhance your borrowing capacity.

• Shared Responsibility: Sharing ownership could facilitate better financial management.

Cons:

• Liability Concerns: Co-signors or co-borrowers are equally responsible for mortgage repayments.

• Ownership Dynamics: Potential complexities in decision-making due to shared ownership.

3. Porting Previous Mortgage: Continuing with Familiar Terms

For those considering transferring an existing mortgage to a new property, porting is an option. This allows you to maintain your current mortgage terms—rate, term, and conditions—when moving to a new property. This needs to be determined at the start of the mortgage approval process as porting could save thousands of dollars.

Pros:

• Financial Continuity: Retains favorable terms, potentially saving on penalties or fees.

• Avoiding Rate Changes: Shields from market rate fluctuations.

Cons:

• Restrictive Conditions: Limited flexibility in choosing new mortgage terms.

• Potential Incompatibility: The new property might not align with the previous mortgage conditions.

Wrapping Up: Pre-Approval as a Launchpad

The Pre-Approval phase serves as your launchpad into the mortgage application process. Gathering income documentation, determining the legal structure, and considering options like porting previous mortgages are pivotal steps.

Understanding the pros and cons of each aspect equips you to make informed decisions, paving the way for a smoother journey toward homeownership. Remember, seeking advice from mortgage professionals can offer valuable insights tailored to your unique financial situation.