You walk into your bank, chat with a lender for 20 minutes, and walk out with a pre-approval letter. You’re good to go, right? Wrong. That piece of paper might not mean anything at all.
Here’s the truth: there are three types of mortgage pre-approvals in Canada, and only one of them actually protects you. The other two? They can leave you legally stuck buying a house you can’t actually finance.
Let’s break down what you need to know before you make any offers on a property.
Type 1: The Verbal Pre-Approval (Don’t Trust It)
This is exactly what it sounds like. You call your lender, tell them about your income and debts, and they give you a number over the phone. It’s the most common type people ask for, and it’s also the least reliable.
Why It Falls Apart
Your debt calculations are probably wrong. Let’s say you owe $10,000 on a credit card and you tell your lender you pay $150 a month. Sounds simple, right? Except lenders have to calculate that debt at $300 per month minimum. That’s a $150 difference that can blow up your approval.
Your credit score is different too. That score you see on Borrowell or your banking app? It’s not what lenders see. Mortgage lenders use something called a beacon score that averages all credit bureaus. The difference can be huge.
Then there’s income. People constantly misstate their income during phone calls. Not because they’re lying, but because they don’t know what lenders can actually use. That one-time bonus you got? Can’t use it. Your car allowance? Maybe, maybe not. That housing benefit your company gives you? If it doesn’t show up on your tax return, it doesn’t count.
When to Use It
Verbal pre-approvals work for one thing only: figuring out your rough budget. They help you understand if you’re in the right ballpark or if you need to adjust your expectations.
But never, ever use a verbal pre-approval as your reason to make a firm offer with no financing condition. People call in a panic all the time saying “My lender said I was good over the phone, so I made a cash offer and got declined. Help me.” Don’t be that person.
Book Your Strategy CallType 2: The Rate Hold Pre-Approval (Better But Still Risky)
This is what most people get when they visit a lender in person. You sit down, they punch numbers into a calculator, and you leave with a document that locks in an interest rate for 90-120 days.
Read that document carefully. It usually says “no approval implied” right on it. You’re getting a rate guarantee, not a mortgage guarantee.
The One Good Thing About It
If interest rates go up during your rate hold period, you’re protected. You get the lower rate. That’s worth something in a rising rate environment.
The Problem
If you walk into that meeting without bringing your income documents, this is basically the same as a verbal pre-approval. It means nothing.
Most people show up, talk about their situation, and the lender types everything into their system. The computer spits out a pre-approval. But unless you’ve actually shown them your pay stubs, job letter, and tax returns, they’re just guessing based on what you told them.
How to Make It Better
Bring your paperwork. Let them see actual documents so they can tell you what income they can and can’t use. This applies whether you’re dealing with a bank, credit union, or mortgage broker. Everyone uses the same basic process.
Type 3: The Fully Underwritten Pre-Approval (The Only One That Counts)
This is the gold standard. It requires the most paperwork, which is why people resist it. But it’s the only type that actually protects you in competitive markets where you might need to make firm offers.
What You Need to Provide
For full-time salaried employees, you need a job letter, recent pay stubs (within 30 days), and your past two years of T4s.
If you get bonuses, overtime, or commission, add your T1 Generals (full tax returns) to that list. Lenders will average your last two years of income. If that average is higher than your current base salary, they’ll use the higher number. But you need to have stayed at the same job for those two years.
Self-employed or working on 100% commission? You absolutely need your past two years of tax returns. There’s no way around it. And lenders will use your income after write-offs and expenses, not your gross revenue.
Why All This Documentation Matters
Lenders call your employer before closing to verify everything on your job letter. They use third-party companies that know how to spot inconsistencies. Everything needs to be accurate and current.
For self-employed people, there are actually tricks mortgage professionals can use to increase your qualifying income. Home office expenses can be added back. Cell phone write-offs can be added back. Vehicle expenses too. But they can only do this if they’re looking at your actual tax returns.
The Actual Underwriting Process
Here’s what makes this different: your application actually goes to an underwriter. A real person at the lending institution reviews all your documents and makes a decision. This takes a day or two, but when it comes back approved, you have a real approval.
The lender has seen everything. They’ve verified your income, checked your credit properly, and signed off on your application. You’re not relying on a calculator or a phone conversation.
The Remaining Risks
Even with a fully underwritten approval, two things can still go wrong.
First, the property itself might not qualify. Maybe it has a cracked foundation, knob and tube wiring, or it’s too small. You’re approved as a person, but the property doesn’t meet lending standards. This happens more often than you’d think.
One client made a firm offer after getting approved by their credit union. The mortgage insurers looked at the property and said “We’re good with you, but not this house.” The client ended up needing a construction mortgage at much higher rates and fees, costing thousands more.
Second, if you refuse to provide documents upfront and only submit them after making a firm offer, those documents might show something different from what you said. Your approval can turn into a decline real fast.
Why People Resist This Type
People hate gathering paperwork. They say it’s too much, too annoying, too time-consuming. And yes, collecting documents is a pain. Nobody enjoys it.
But if it protects you and your family from being stuck in a contract you can’t fulfill, it’s worth it. The alternative is risking your deposit, facing legal action, and potentially owing penalties you can’t afford.
One Question to Ask Your Lender
Before you work with any lender, ask them: “Does my pre-approval get fully underwritten?”
If the answer is no, you need to think carefully about whether you want to make firm offers based on that approval.
Not all lenders offer fully underwritten pre-approvals. You need to specifically ask for this service and confirm they’re actually sending your application to underwriting.
Why This Matters Right Now
In competitive markets, almost every house gets multiple offers. Buyers feel pressure to remove conditions to make their offers more attractive. Sellers love firm offers because there’s no risk of the deal falling through.
But if you make a firm offer without proper approval, you’re taking a huge gamble. You could lose your deposit. You could face legal action. You could owe penalties that dwarf what you saved by skipping the documentation step.
The Bottom Line
Most pre-approvals are just rate holds based on verbal information. They’re better than nothing for getting a sense of your budget, but they don’t protect you.
If you’re serious about buying and there’s any chance you’ll need to compete with other buyers, get a fully underwritten pre-approval. Yes, it requires more paperwork upfront. Yes, it takes a couple days longer. But it’s the only type that means something when you’re signing a contract to buy a house.
Don’t let the inconvenience of gathering documents today turn into a financial disaster tomorrow.
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