Having a mortgage pre-approval is a beneficial step when buying a home. As a Hamilton mortgage broker, I’ve seen first-hand the confusion between pre-approval and pre-qualification and how the difference between the two has affected my clients.
While these terms have been used interchangeably by many lenders and larger financial institutions, they are different regarding what they can do for you. I’m going to go over what they are and what sets them apart from each other. To further confuse matters most financial institutions that say they offer a pre-approval often only offer a “rate hold” which basically offers the customer a set interest rate if they are ultimately approved, which is after they make an offer on a house.
What Pre-approval and Pre-qualification Are
Both terms refer to getting an estimate of how much you qualify for with a mortgage. They will both help you to narrow your home search down because you will have an idea of what you can afford. That is basically where the similarity between the two ends though.
How They Differ From Each Other
Getting a true pre-approval is the “gold standard” and can carry much more weight when it comes to buying a home. The process of a pre-approval requires a deeper look at your finances, credit score, history, and requires you to submit documentation on your income, assets, and debts to get an estimate of how much you could afford for a mortgage. If the pre-approval amount and conditions are met, you will get a letter as proof that all of the information and the loan amount have been verified by the lender.
This is what makes a pre-approval letter more beneficial than a pre-qualification. When it comes to buying a home and putting in an offer, the seller and real estate agent will choose someone with a pre-approval over a pre-qualification. This is because a pre-approval shows them that you are not only serious about buying a home, but you have the means to do so. They have that reassurance that the transaction won’t be held up waiting for someone to get approved and the sale can go through quicker.
When dealing with a potential lender that does not offer pre-approvals but instead offer rate holds or when dealing with a high ratio insured mortgages where the insurer does not offer pre-approvals for any lender a pre-qualification through your broker is the next best thing.
While both processes will look at your financial circumstances, a pre-qualification through your Hamilton mortgage broker is underwritten based on their many years of experience taking a look at the same information an underwriter will, including your credit history, collecting income documentation etc. and then giving you an opinion as to what you can be approved for. The most important part of the process is the level of experience of your mortgage broker.
You can get a pre-qualification online or over the phone at no cost and can take about 2 to 3 days to get.
If you’re looking to buy a home and want to give yourself an advantage, speak to one of our Hamilton mortgage brokers to get a pre-approval or pre-qualification today!