Humber/Ontario Real Estate Course 4 Exam Practice

What does pre-approval for a mortgage typically involve?

1. The buyer is guaranteed the lowest interest rate available

2. The lender has approved a specific mortgage amount, subject to property approval

3. The buyer becomes a cash buyer for negotiation purposes

4. The pre-approval indicates the minimum amount that can be borrowed

5. The buyer meets standard provincial requirements for mortgage qualifications

6. The buyer is required to pay a higher interest rate

The correct answer is: The lender has approved a specific mortgage amount, subject to property approval

Pre-approval for a mortgage typically involves the lender evaluating a buyer's financial situation and determining a specific mortgage amount that can be granted, contingent upon the property meeting the lender's approval criteria. This process includes an assessment of the buyer's income, credit score, employment history, and existing debts to ascertain how much they can afford. While pre-approval provides a firm understanding of how much money is available for purchasing a home, it does not guarantee a loan since the property in question must still meet the lender's standards to finalize the mortgage. This nuance distinguishes it from other assertions regarding interest rates, negotiation power, or minimum borrowing limits, making the understanding of these conditions critical for buyers as they prepare for home purchases.