Prequalification and Pre-approval—what is the Difference?
Many people assume that pre-qualification and pre-approval are the same thing because these terms are often used interchangeably. While both processes are part of a mortgage application, the terms are actually quite different.
What Is a Pre-qualification?
Mortgage pre-qualification can be done online or over the phone as the process is quick and simple. This is often the first step of a mortgage application process, during which a lender will conduct a basic review of your credit, overall finances, income, debts and any assets you may have. The lender will check the information that the borrower submits and provide them with an estimate of how much they can borrow. It is very important for borrowers to understand that a pre-qualified amount is not a guarantee, so you should not move on to the next step or make any concrete decisions, as this amount can change when the lender conducts a more thorough financial analysis of your situation.
What is a Pre-approval?
A pre-approval will follow the pre-qualification process. This will provide you with a concrete borrowing amount as the lender will ask for proof of your finances and credit history. They will verify every detail, including any debts and your employment, and check your credit report. You will need to fill out a mortgage application for this stage, and the lender will make their decision after they complete an intensive credit history check. They will review every aspect of your finances and will also require an estimate of your down payment for the home you wish to purchase. During a pre-approval, your lender will provide you with a specific loan amount and be able to disclose the interest rates for the mortgage.
What is the Difference?
While pre-qualification is a great first step in the home buying process, it is not enough, and sellers will not take your bid seriously unless you have a pre-approval. The latter will show that you are serious about buying the home, so you will be ahead of the game, which is very important in today’s competitive real estate market. Once you are pre-approved, you will receive a letter, which you can show to your real estate agent and sellers to prove your offer is
legitimate. A pre-approval is a deeper review of your finances to determine your creditworthiness and to provide you with a specific loan amount.
The mortgage process is not always simple, and Collin Bruce can provide you with more information. Whether you are a first-time homebuyer, in need of a mortgage comparison, require a pre-approval, a reverse mortgage or a no down payment mortgage, we can help because we are one of the top mortgage companies in the Edmonton area. Our specialists can help refinance your mortgage, and we can also discuss second mortgages. Working with a reputable mortgage broker is very important and if you are looking for the best fixed-rate mortgage or an experienced advisor, contact us today!