Humber/Ontario Real Estate Course 2 Exam Practice

What does the term "pre-approved buyer" mean in relation to a mortgage?

1. The buyer has met various qualifying requirements that are standardized among lenders in the province.

2. The buyer becomes a cash buyer for purposes of negotiations.

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

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

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

A pre-approved buyer means that the lender has reviewed the buyer's financial situation and credit history and has determined the maximum mortgage amount they are willing to lend to that buyer. This pre-approval is based on the buyer's financial information and does not involve a specific property. Once the buyer has a pre-approval, they can confidently shop for homes knowing the maximum amount they can borrow. However, it is important to note that the lender will still need to approve the selected property before finalizing the mortgage loan. This is why option C is the correct choice in this scenario. Option A is incorrect because it refers to standardized qualifying requirements among lenders in the province, which is not the definition of a pre-approved buyer. Option B is incorrect as it does not accurately describe the concept of a pre-approved buyer. Option D is also incorrect because it mentions the minimum amount that can be borrowed, which is not the same as the maximum amount determined in a pre-approval.