Pre-Qualification vs. Pre-Approval
Both are a good idea, but it’s common that people mistake these two terms and the difference can be huge when you’re buying a home.
It’s important to make a difference between the two terms so you can get the mortgage rate that is not only right for you but is also correct and valid – that’s something that we at Dominion Lending emphasize.
What Is a Pre-Qualification and Why Get It?
A pre-qualification is a more general estimate of how much mortgage you can afford.
The lender looks at your finances, assets, and any debt and based on these indicators, calculates the amount you can afford to borrow.
It’s the first step of the approval process where the lender uses your total debt service ratio and your gross debt service ratio to determine if and how much you’d be able to afford to repay.
Some documents required for a prequalification are tax forms, employment letters, credit reports, and so on.
What Is a Pre-Approval and Why Get It?
A pre-approval, on the other hand, will allow you to get a much better and more accurate estimate of what you can afford.
It will also help you find out what your financial problems are that hinder your overall creditworthiness, so you can work on them and increase your chances of getting a higher mortgage.
In most pre-approvals, the lender agrees to fund your mortgage based on your current financial position.
If none of the terms in the contract change such as your debt, income, employment status, or credit score in the 90 to 120 days (in most cases) after the pre-approval, you’ll be able to sign the contract under the pre-approval terms.
Benefits of Getting a Pre-Qualification or Pre-Approval
As I mentioned above, both options are good to get and will help you in the process of buying a house. In general, some of the benefits of getting one or the other are:
- You can shop for houses knowing the price you can afford
- You’ll be able to give more solid offers to sellers
- You’ll know your rates in advance and can choose the lowest one
- You can lock in rates for a certain period of time
- You’ll go through the whole process with less stress
Keep in mind that the rates you get in both pre-approvals and pre-qualifications are by no means guaranteed.
A pre-approval will guarantee the rate for 90 to 120 days depending on the lender, but beyond this point, the rates may be different.
Getting the right option is important to be able to plan your financial future.
It’s here that we see the importance of having a qualified and experienced mortgage agent that will show you the right path towards getting a mortgage.
They will point out any problems that are hindering your credit score and help you get a better overall outcome.
We are dedicated to giving you the most helpful mortgage advice and giving you the best mortgage service, no matter what your needs are.
As a Mississauga mortgage broker who specializes in Pre-Approvals, you can be sure that we have the solution for you that will take away all of the stress and get the best mortgage product for you.
Get started today by applying online – it’s free and takes less than 90 seconds. Apply here at: https://www.goodadviceforabetterlife.ca/application/