Posted in Seems like a relatively simple question, but the answer is not quite as straight forward as you might think.
If you have a mortgage pre-approved by a bank or mortgage company, it means that if you were to purchase a house up to a certain price range (based on your financial circumstances at that exact moment in time) that they would be willing to support a mortgage application (assuming the property met their criteria) and forward it to CMHC/Genworth/Canada Guaranty if you had a downpayment of less than 20% of the purchase price. Most times the institution is willing to guarantee an interest rate for a fixed period of time (usually up to 4 months).
However, even if your bank prints you out a pretty piece of paper saying that you have been preapproved, it really is only an indication that you likely would be approved. If the amount of your debt load were to increase or if you were to miss one of your debt payments, the approval could be in jeopardy. If the lender tightened their lending standards or if there was a change in your income stream or job, the approval might also not be valid. Even if nothing has changed and your bank was still willing to support the application, the high ratio mortgage insurer (CMHC etc) has the final say on whether or not a deal would get approved if you have less than 20% down. In the case of mortgage pre-approvals, CMHC has not looked at the deal so there is no real guarantee that the deal would go through as structured.
So, is there still value in going through the process? Absolutely! It will not only allow you to lock in an interest rate but will give you an idea of a budget/payment structure that you can expect to receive. In order to have true clarity on the situation, dealing with a busy agent or broker will be your best bet as they will have enough experience/empirical evidence to figure out whether or not CMHC would approve the deal. Regardless of how absolute your approval seems to be, even if a bank likes you as a borrower they may not like the property you are purchasing. At the end of the day, just as a precautionary measure, I would advocate for inserting a financing clause in any offer to avoid potential legal issues down the road should a deal fall apart.
