What’s the difference between a mortgage pre-qualification and pre-approval? We’re glad you asked. While both are important steps in the home buying process, there are some key distinctions between the two.
Here’s what you need to know:
What is a Mortgage Pre-Qualification?
Simply put, a mortgage pre-qualification is a free estimate of how much home you might be able to afford. After making a high-level assessment of your finances (income, debt, assets, etc.), a lender will provide you with a ballpark figure for how much you can expect to borrow. Pre-qualifications are typically done the same day online, in person or over the phone.
Advantages of Getting Pre-Qualified
- Knowing how much home you can afford before you begin the home buying process
- A better understanding of your financial health and, if needed, areas to improve upon prior to seeking a mortgage loan (not to mention, the chance to obtain a better interest rate)
- An idea as to how much your monthly payments and interest rate will be, in addition to your loan term
- An opportunity to zero in on homes in your price range, saving you time money and potential frustration later on
What Do I Need to Get Pre-Qualified?
On meeting with a lender, be prepared with the following information:
- Annual income
- Record of employment
- Total debt outstanding (credit cards, car loans, lines of credit, student loans, etc.)
What is a Mortgage Pre-Approval?
Whereas a mortgage pre-qualification is an initial first step in determining what you might be able to borrow, a pre-approval will tell you exactly how much home you can afford. Much more involved, the pre-approval process takes an in-depth look at your finances, including your credit history (the lender will check your credit report), debts, income, employment history, assets, etc.
Upon meeting lender requirements, you will be issued a pre-approval letter, guaranteeing a specified loan amount and interest rate for a period 60, 90 or 120 days.
Advantages of Getting Pre-Approved
As real estate experts we recommend having your pre-approval in hand before hitting the market, here’s why:
- Interest rate protection
- The ability to plan your monthly payments
- Assist your REALTOR® in narrowing your home search
- Save time, money and frustration by looking only at homes within your price range
- Home sellers will take you more seriously, giving you a competitive edge over other buyers
- Increased ability to negotiate with sellers
- Enjoy a faster closing period and peace of mind
What Do I Need to Get Pre-Approved?
Here again, the pre-approval process is much more involved. Upon meeting with the lender, you will require the following (note: information required may vary by lender):
- A completed mortgage application
- Employment letter outlining length of time at your current workplace, in addition to position, title, salary or wage information
- A recent pay stub
- Two years of T4s
- Two years of tax returns
Find out what your mortgage payment could be with the help of our mortgage payment calculator. This free, easy to use application will help you determine monthly payments based on sale price, loan terms, down payment, and the loan’s interest rate.Terry Paranych on