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Pre-Approved vs. Approved Mortgage: Know the Difference and Which One You Need First
Buying a home is one of the biggest financial decisions most Canadians will ever make.
Before you even start touring open houses or scrolling through real estate listings, it’s essential to understand the difference between a pre-approved mortgage and an approved mortgage.
While they may sound similar, these are two separate steps in the home financing process—and knowing which one comes first can save you time, money, and stress.
In this guide, we’ll walk you through what each term means, how the processes work in Canada, and how to approach them as a well-informed homebuyer.
What Is a Pre-Approved Mortgage?
A mortgage pre-approval is a preliminary assessment by a bank or mortgage lender that estimates how much you may be able to borrow, based on your financial and credit information. It gives you a rough idea of your buying power and helps you shop for homes within a realistic price range.
It’s important to note that pre-approval is not a guarantee of funding—but it is a strong signal to realtors and sellers that you’re a serious and qualified buyer.
Key Features of Pre-Approval
- Based on your income, debt level, credit score, and financial documentation
- Usually involves a credit check
- Results in a letter or certificate indicating how much you can borrow and under what conditions
- Valid for a limited period (typically 60–90 days)
- May include an estimated interest rate and projected monthly payments
Why Get Pre-Approved?
Getting pre-approved offers several practical advantages:
- Helps you determine your budget and avoid wasting time on properties you can’t afford
- Strengthens your negotiating position
- Speeds up the offer process when you find the right home
- Allows you to identify and resolve any issues with your credit or documentation early
In competitive housing markets like Toronto, Vancouver, or Calgary, pre-approval is often seen as essential.
What Is an Approved Mortgage?
A mortgage approval happens after you’ve chosen a specific property. This is the final step where the lender evaluates both your financial profile and the property itself to decide whether to officially approve the loan.
At this point, the lender will:
- Conduct a professional appraisal of the property’s market value
- Review the legal and financial status of the property (e.g., title, registration, liens)
- Re-confirm your income and financial status
- Ensure everything meets their lending policies
Even if you have a pre-approval, your mortgage could still be declined at this stage if the property doesn’t meet the lender’s criteria or if your financial situation has changed.
Factors That Can Affect Final Approval
- Property value is appraised lower than the purchase price
- Outstanding legal or tax issues with the property
- Changes to your income, employment status, or credit
- Incomplete or incorrect documentation
Pre-Approval vs. Approval: What’s the Difference?
| Feature | Pre-Approved Mortgage | Approved Mortgage |
|---|---|---|
| When it Happens | Before you choose a property | After selecting a specific property |
| Based On | Your financial profile and credit history | Your finances + property details |
| Guarantee of Funds? | No | Yes |
| Validity | 60–90 days | Valid through completion of purchase |
| Main Purpose | Budgeting and showing buying intent | Securing financing for a specific property |
Which One Comes First?
You should always start with a mortgage pre-approval. It sets the stage for a smoother home-buying experience by giving you a clear price range and preparing you for what lies ahead.
Only after you’ve chosen a home should you move forward with the final approval process.
Without Pre-Approval, You Risk:
- Falling in love with homes outside your price range
- Losing out on a property due to delays
- Facing unexpected issues with your credit or finances at the last minute
Real-Life Example: Why Pre-Approval Matters
Emily and Marc from Ottawa skipped pre-approval and went straight into house-hunting. They found a beautiful townhouse but were later shocked to learn the bank would only approve a loan for $40,000 less than the asking price. Without pre-approval, they wasted valuable time and missed the opportunity to negotiate better or prepare for a realistic budget.
This kind of situation is common—and easily avoidable.
Tips to Keep Your Mortgage on Track
- Keep your finances stable. Avoid taking on new debts, changing jobs, or making large purchases before approval.
- Stay within your pre-approval limit. Don’t stretch beyond what the lender has indicated you can afford.
- Work with licensed professionals. A mortgage broker or financial advisor can help you navigate complex paperwork and choose the right product.
- Understand your lender’s requirements. Each financial institution has different policies, especially when it comes to the property assessment.
- Double-check documentation. Ensure your paperwork is accurate, complete, and up to date.
Your Rights as a Borrower in Canada
Under Canadian law, lenders must provide transparent information about mortgage terms and rates. You also have the right to:
- Receive a clear explanation of how your mortgage is structured
- Be informed of any prepayment penalties
- Access support through mortgage specialists or government-approved housing counsellors
Understanding your rights and responsibilities helps you avoid surprises and make better long-term financial decisions.
Final Thoughts
Getting a mortgage in Canada involves more than just signing paperwork—it requires planning, strategy, and understanding the two-step process of pre-approval and final approval.
Start with pre-approval to know where you stand. Then, once you find the right property, complete the approval process with confidence. Taking the time to follow both steps can mean the difference between closing your dream home or facing unnecessary delays—or worse, a declined application.
When in doubt, talk to a mortgage professional who understands your goals. A little preparation now can lead to peace of mind and financial stability for years to come.
