Mortgage pre-qualification vs. pre-approval
Mortgage pre-qualification vs. pre-approval
by RateHub.ca
What's the difference between a mortgage pre-qualification and mortgage pre-approval? Often used interchangeably, these do not mean the same thing.
Mortgage jargon is tricky territory to navigate and the terms "pre-qualification" and "pre-approval" are no exception. Don't make the common mistake of assuming that the two terms are interchangeable. They each have their own place and do not hold the same weight in the process of acquiring a mortgage.
1. Mortgage pre-qualification
Mortgage pre-qualification is essentially a first pass at being approved for a mortgage and comes prior to pre-approval. Consequently, pre-qualification is a straightforward procedure to get a rough estimate of the loan amount that you could be approved for. You can do this free of charge, on the internet or over the phone. Simply provide some basic financial information including your assets, income and debt.
Keep in mind, that since this is an unofficial process, it will not give you a complete picture of where you stand. This is primarily because mortgage pre-qualification does not take into account your credit rating which is a crucial factor in determining your eligibility. However, the major advantage of such a step is that you are able to evaluate where your affordability threshold stands.
Ultimately, mortgage pre-qualification provides you with the approximate mortgage amount that you may be approved for.
2. Mortgage pre-approval
On the other hand, mortgage pre-approval is the official process by which an in-depth analysis of your financial situation is conducted. This step comes after pre-qualification and you will have to submit documentation to your lender.
At this stage, your current credit rating will be investigated to ensure that you meet minimum lending requirements. An official mortgage application is also required. This step is generally free of charge and you are not committed in any way to a lender from whom you obtain pre-approval. That is, you are free to switch at any time, penalty-free.
Unlike pre-qualification, getting pre-approved will give you a detailed analysis of the home that you can afford, having taken into consideration your income, savings and the subsequent mortgage payments for a range of purchase prices.
3. Additional considerations
Most mortgage pre-approvals come with a mortgage rate guarantee. This offers some protection in the face of possible rate fluctuations.
Pick your top three lenders from which to obtain pre-approval. Your credit score suffers if you pull your credit rating more than three times within a six-month period. So it is best to narrow down your options, keeping in mind their best mortgages rates, terms and conditions. Or, use a mortgage broker, who will pull your credit score once and shop it to different lenders.
Obtain your written pre-approval for a specified loan amount. After you are pre-approved, you will be given written conditional commitment from your lender. This provides you with the peace of mind to look for a property at or below the stated price level. In a competitive market, this document is to your advantage as the seller of the property already knows that you're a financially secure.
To sum up, pre-qualification is a quick way to do some preliminary research on your affordability; however, you will require written pre-approval stating the specific loan amount that you can qualify for.
Posted by Szabolcs Pall
on January 5, 2012