Humber/Ontario Real Estate Course 3 Exam Practice

What does it mean when a buyer is pre-approved for a mortgage?

1. The buyer has met various qualifying requirements standardized among lenders.

2. The lender has initially approved the buyer based on a predetermined mortgage amount but must still approve the selected property.

3. The pre-approval sets out the minimum amount that can be borrowed by that buyer.

4. The buyer becomes a cash buyer for negotiation purposes.

5. The buyer is guaranteed the loan amount regardless of the property selected.

6. The buyer must finalize the approval after property inspection.

The correct answer is: The lender has initially approved the buyer based on a predetermined mortgage amount but must still approve the selected property.

When a buyer is pre-approved for a mortgage, it signifies that the lender has conducted an initial assessment of the buyer's financial situation and has approved them for a specific loan amount, subject to further verification and approval once a property is selected. This process involves reviewing the buyer's credit history, income, and debts, allowing the lender to determine a suitable mortgage amount. The key aspect of pre-approval is that while it establishes a general limit on how much the buyer can borrow, the ultimate approval is contingent on the property itself meeting the lender's criteria. If the buyer selects a property, the lender will then conduct a more thorough appraisal and inspection of that property to finalize the loan agreement. Consequently, this reinforces the idea that the pre-approval is not a guarantee for every property but sets the stage for the buyer to shop confidently within a certain price range, knowing that they are likely to qualify for financing. The other options do not fully capture the nuances of what pre-approval entails, as they either overstate guarantees or misinterpret the process's requirements.