Why do mortgage pre-approval numbers keep changing?

From a broker’s perspective, trying to price clients higher is a bit like (getting old here) the sliding puzzles that were around when I was young.

I recently had a conversation with a young couple who were frustrated with a broker they were working with. They said that every time they spoke to the broker, their numbers seemed to change.

I explained a bit about how we calculate our prequalifications/preapprovals and told them that their broker is being very thorough to make sure they don’t end up writing a price point that they won’t qualify for. I showed you how your broker is doing an amazing job of making sure you are set up for success.

Sometimes it gets frustrating on both ends as goals seem to move faster than clients can find a suitable home to write an offer on. Having a rate hold helps remove some of this uncertainty.

Every mortgage application is slightly different. Every lender is slightly different. Clients may have T4 income or self-employment income, as well as other sources, including child tax (credit) income, pensions, interest or dividend income, RRIF payments, and co-borrower income.

Likewise, advances come from different sources:

• Savings

• Proceeds from the sale of another property

• RRSP (First Time Home Buyer Retreats)

• Gifts from the family

• First Time Home Buyer Incentive Program

• Borrowing sources (flexible mortgages)

And, of course, the “stress test” comes into play.

If you don’t know the stress test, the short version is that we have to rate your mortgage application at your contract rate plus two percent or the Bank of Canada reference rate, whichever is higher. Contract Rate means the actual rate at which you will be approved.

This calculation was much easier when fixed rates were below 3.25 percent, since we could use the benchmark rate of 5.25 percent and be confident in our numbers.

Right now, most lenders have 4.89 percent (give or take a little) available for a five-year fixed rate on a secured mortgage. So you would run your calculations at 6.89 percent and hold a rate so you are sure of your price point.

Easy, right?

We now turn to the lender’s side. As an example, some lenders will use the full amount of CTC income. Others will only use a percentage. Some lenders will accept a first-time homebuyer incentive program down payment, while others will not.

Some lenders will finance properties with wood foundations, while others will not.

You can get a picture here: The calculations that work with a lender to maximize your price point may not work with the lender that will actually finance the home you’ve written your offer on.

My best advice if you are venturing into the world of homeownership is to take your time and do your homework.

One of my November columns talks about the challenges you can face if you don’t have your ducks in a row.)

In many markets, we need to help you maximize your mortgage amount just to get into the market, so it may take several conversations before you have an exact number. Be patient with the process and learn as much as you can before writing an offer. The time invested up front will help make the process easier for you.

This article is written by or on behalf of a subcontracted columnist and does not necessarily reflect the views of Castanet.