Find out what you can borrow before you fall for a home

Why renters get this backwards

The usual order is: browse homes, fall for one, then find out what you can borrow. That way round, the number arrives too late to be useful and often smaller than expected — so the search starts again from scratch, with the disappointment attached.

Reversed, it does real work. A pre-approval gives you one monthly figure, and every listing on this site is already priced in that unit. You stop looking at homes that were never available to you, and you find out early if you are closer than you thought — which happens more often than people expect, because most renters have never actually asked.

What a pre-approval actually gets you

• A real monthly ceiling. Not a calculator’s guess — a number a lender has looked at your income, credit and debts to produce.
• A rate hold. Typically 90 to 120 days. If rates rise while you shop, you keep the held rate; if they fall, you get the lower one.
• Standing when you offer. In a competitive situation a seller treats an offer backed by a pre-approval more seriously than one without.
• An early read on problems. A credit issue you did not know about is far easier to fix three months before an offer than three days after one.

What it does not get you

A pre-approval is not a guarantee of financing. The lender still has to approve the specific property, and the final approval depends on the appraisal, the condition of the home, and your circumstances not changing between the pre-approval and the closing. Changing jobs, taking on a car loan, or putting a large purchase on credit in the middle of a purchase can undo one. If you are pre-approved, the safest thing you can do is keep your finances boring until you have the keys.

The down payment is smaller than most renters think

The twenty per cent figure is the one everybody has heard, and it is not the minimum. In Canada you need five per cent on the first $500,000 of the purchase price and ten per cent on the portion above it. On a $400,000 Edmonton home — around the middle of this market — the minimum is $20,000.

Below twenty per cent, you pay mortgage default insurance. That premium is added to the mortgage rather than paid in cash, so it raises the monthly payment slightly instead of demanding more up front. It protects the lender, not you, but it is what makes a five per cent down payment possible at all.

Two federal accounts exist specifically for this, and they stack: the FHSA lets you contribute up to $8,000 a year to a maximum of $40,000, deductible going in and tax-free coming out for a first home. The Home Buyers’ Plan lets you withdraw up to $60,000 from an RRSP, repayable over fifteen years. Between them, a couple can assemble a substantial down payment out of income they were taxed on anyway.

The stress test, and why the number comes back lower than you expect

Lenders cannot qualify you at the rate you will actually pay. They must use the greater of your contract rate plus two per cent, or 5.25 per cent. So if your rate is 4.34%, you have to prove you could carry payments at 6.34%.

This is the single biggest reason a pre-approval disappoints. It is not a judgement on you — it applies to every borrower at every federally regulated lender. It also means the payment you are approved against is deliberately higher than the payment you would make, which is a cushion, even if it does not feel like one while you are being told your maximum.

Costs beyond the down payment

The down payment is not the whole cash requirement. In Alberta you will also need legal fees, a title transfer registration fee, an appraisal or inspection if you want one, and the moving costs everybody forgets. Alberta has no land transfer tax, which is a meaningful advantage over Ontario or B.C., but budgeting one to two per cent of the purchase price for closing costs is realistic.

What happens when you send this form

Ryan reads it and introduces you to a mortgage broker who works with first-time buyers. The broker takes it from there — they compare lenders on your behalf and are paid by the lender that ends up funding your mortgage, not by you. There is no fee to you at any point, and no obligation to proceed.

We never ask for your SIN, income documents, or banking details on this site. The broker collects those directly and securely if and when you choose to go ahead. If a page anywhere asks you to type a SIN into a web form to “check what you qualify for”, close it.