Considering mortgage rates and contemplating your first home purchase? When embarking on your journey to homebuying, it may be tempting to find your dream home before determining whether you qualify for it. A nugget of advice: As a potential homebuyer, you'll have greater leverage if you pre-qualify first.

To make the most out of the homebuying process, we’ve compiled the necessary documents you’ll need to pre-qualify for your mortgage at the bank. By the end, you’ll also be able to use a mortgage calculator to estimate your monthly mortgage payments, empowering you to feel confident on your house hunt!

Why it’s important to pre-qualify

The housing market is highly competitive, and can heat up at the drop of a hat.

When you start looking for your new house, it's essential to pre-qualify for a mortgage before making an offer on a property. In most cases, other potential homeowners are interested in the same property, and pre-qualifying can put you over the edge in several ways:

Pre-approval letter: Provides assurance from a lender to provide you with financing to buy a home up to a certain loan amount.

Credibility: Demonstrates you’re a serious and financially capable buyer, making you more appealing compared to someone who hasn’t undergone pre-qualification.

Speed: Pre-qualification means you've already completed some of the necessary financial steps, which can expedite the homebuying process in a hot market where properties are selling quickly.

Budget clarity: Provides a clear understanding of how much you can afford to spend on a home. Armed with this knowledge, you can focus your search on properties that are within your budget.

Getting pre-qualified means, you've been pre-approved by the bank, and you can feel confident putting in an offer!  This preliminary step can significantly bolster your position as a potential homebuyer and speed up getting your offer accepted.

What the bank needs to determine your pre-qualification

Let’s delve into the specifics. During the pre-qualification process, your lender will need insight into your financial situation to determine two critical factors: your ability to afford a mortgage and the maximum amount you can borrow for your mortgage.

To do this, they'll request the following documents:

Government identification: You'll need a government-issued photo identification document, such as a valid Canadian passport, driver's license, or provincial/territorial ID card. The document should be current and not expired. Permanent residents of Canada should bring their PR Card or a Confirmation of Permanent Residence (COPR) document as proof of their status. Lenders may accept these documents as proof of identity and residency. However, they may also require additional identification, such as a passport from your home country.

Proof of employment and income: This includes a proof of your hourly pay or current annual salary, your position and length of employment with your current employer, or if you’re self-employed, notices of assessment from the Canada Revenue Agency from the past two years.

Bank statements and tax documents: Provides a comprehensive view of your financial transactions.

Details of your monthly expenses: Includes credit card bills, car loan payments, auto and home insurance costs, child or spousal support, student loans, line of credit, and any other debts.

Once the bank has reviewed your financial records, they’ll provide you with a pre-qualification letter. This letter will specify the maximum mortgage loan amount you can afford when homebuying which will help when you make informed offers to sellers.

Related: Your guide on how to get mortgage approval in Canada

Using a mortgage calculator for your mortgage payment and mortgage potential

If you’re in the preliminary stages of your home search and simply want a ballpark estimate of how much you can afford, it can be helpful to use a mortgage calculator.

Mortgage affordability calculator

Start by using a mortgage affordability calculator to determine how expensive of a house you can afford.

Here's an example: You and your spouse have a combined annual income of $220,000 and you're eyeing a $750,000 home in Ontario. Let's say you put $100,000 down - with a 30-year amortization and 3.09% interest, the maximum mortgage amount you can afford is about $884,000.

Mortgage payment calculator

Next, use a mortgage payment calculator to determine your potential monthly mortgage payment.

Using the same figures above: A $100,000 down payment, 3.09% interest and a property price of $750,000, your monthly payment would come out to $2,831.49.

Ready to find the best mortgage rate?

Pre-qualifying for your mortgage eliminates the guesswork from your home search. Knowing how much you can afford allows you to look for homes within your budget, and with pre-approval, you’re best positioned to make serious offers before someone else beats you to it!

Read next: Home inspections 101: Why you don’t want to skip this step