With the spring house-hunting season upon us, many Canadians will be looking for a starter home or trading up to a larger home. While it’s fun to attend open houses and daydream about how you’d furnish your new pad, buying a home is a huge financial decision that should weigh many more factors than the colour of the walls or the fixtures in the bathroom (which are really just cosmetic issues anyway).

Before you meet with a real estate agent or hit the open house circuit, I urge you to meet with a mortgage broker and get pre-approved for a mortgage so you can shop within a realistic price range given your income and debt. In fact some, real estate agents will not spend their time showing you properties until you have a pre-approval, because they want assurance that their time will be well spent with serious buyers who can actually close on a property when the time comes.

However, pre-qualifying for a mortgage is not the same thing as getting pre-approved. Here’s what you need to know about each process:

Pre-qualifying for a mortgage

Pre-qualifying is a relatively quick process where a bank or mortgage broker estimates the amount of money you could potentially borrow based on your income, assets and debts. However, it doesn’t get into the nitty-gritty details of your financial situation and your creditworthiness, so it’s not as precise as a pre-approval.

Getting pre-approved for a mortgage

Mortgage pre-approvals require a lot more paperwork to document your financial situation, including your employment and credit history. Based on the information collected during the pre-approval process, some lenders will issue you a letter or a commitment stating the amount you will likely be able to borrow. The lender will also guarantee the current mortgage rate for up to 120 days (although if the mortgage rate drops before you close, you’ll get the lower rate).

Conclusion

However, neither pre-qualifying or getting a pre-approved for a mortgage guarantees that you’ll actually get approved for and be able to borrow the full amount. Thankfully It’s not a frequent issue with my clients, but if something in your financial situation changes (for instance, you leave your job or accumulate high debt) it could mess up your closing. Another scenario that might throw a wrench in your plans is if you wind up choosing a type of property that’s harder to finance such as a leasehold or a former grow-op. The lender doesn’t just write a blank check for any property you choose; they must give the OK before the transaction can be finalized. Understanding these distinctions and setting realistic expectations can help you avoid surprises.