The terms ‘pre-approval’ and ‘pre-qualification’ are likely to pop up as you begin looking at Pickering real estate and applying for a mortgage. These terms are both related to the verification process that mortgage lenders will use to decide how much you may receive from them.
The two terms may sound interchangeable, but they actually mean different things when it comes to the mortgage verification process. With that in mind, we’ve created this article as a guide to help you better understand each term.
Below, we’ve summarized the key facts you need to know about pre-approval and pre-qualification. Read on to find out more.
Pre-Approval
The pre-approval process is an accurate establishment of your borrowing capacity. It means that a lender states that you qualify for a loan based on the information you have given. You can get mortgage pre-approval from various places, including mortgage lenders and mortgage brokers. You are assessed against various personal documents as well as your credit history.
Lenders look to your finances during the pre-approval process and can offer you an interest rate that is fixed for between 60 and 130 days.
Your approved mortgage amount is the maximum you will be able to access and takes into account the value of the property and the down payment. Pre-approval doesn’t necessarily mean you will be approved for a mortgage.
The typical length of time for mortgage pre-approval in Ontario is 1–5 business days, however, it may take up to 10 days in some cases.
Pre-Qualification
Pre-qualification is similar to pre-approval but it requires less information. Generally, pre-qualification will give you an estimate of your borrowing capacity based on your income. It does not take as much into consideration as pre-approval does.
Pre-qualification is a good tool to find out what you can afford based on your current income. Lenders who offer pre-qualification services may issue you with a pre-qualification letter, but like pre-approval, this does not guarantee you a mortgage.
Pre-qualification will serve you better as you begin looking into Pickering real estate. It can give you a summary of what you can afford. Pre-approval is more useful later on.
What Is Required Of Me In Order To Be Pre-Qualified Or Pre-Approved?
The two processes have different requirements. For pre-approval, you will need the following:
- Information on your assets
- A residential address and other personal information
- Bank statements
- Verified income information and proof of employment (If you are self-employed, you will need 2 years’ worth of assessment notices from the Canada Revenue Agency)
- Social insurance number (optional)
- Child or spousal support, if applicable
- Student loans and other debt information
- Proof you have the down payment amount
- The estimated value of your home (if you currently have one)
This is a non-exhaustive list and may include further information about your credit history and financial situation.
Generally, the pre-approval process is a much deeper dive into your financial stability than the pre-qualification process. For pre-qualification, the list is much shorter. You will only need the following:
- Self-reported income information
- Down payment amount
- Personal documents
- Liabilities such as a car loan, student loan or any other loan
As you can see, pre-qualification is a less in-depth look at your finances which is why the value you receive is only ever an approximation.
Which One Is The Better Option For Me?
Pre-approval is a more useful option for you when it comes to the mortgage application process, but as pre-qualification comes at the beginning of your property search, there is no harm in getting it too.
Pre-qualification is a good approximation of what you’re likely to get from a lender, and therefore, what you can afford. It can help to focus your property search with your Pickering realtor and look at properties you will be able to afford.
Pre-approval is more useful later on and will give you peace of mind when you begin your mortgage application. It will also give you a fixed interest rate for a set amount of days which can help you out in the long run.
The Best Time To Get Pre-Approved
When you get a pre-approval letter, it tends to come with an expiration date, as does your fixed interest rate. It’s best to get pre-approval when you are serious about buying a property. This way you know how much you can afford to buy a new home. Also, if the interest rates are going up, your rate will be guaranteed for 90 days.
If you’re still in the early stages of house hunting, but want to know how much you could borrow, we suggest pre-qualification instead.
So What Happens After Being Pre-Approved Or Pre-Qualified?
Both pre-approval and pre-qualification set you apart in the buyer’s market. After you have gone through the processes, you will usually get a letter indicating you are either pre-approved or pre-qualified. This can help you to look more serious as a buyer and may speed up the process of getting documents ready when you put in an offer.
For Buying Or Selling A Home, Call Bansal Team!
Bansal Team is a team full of experienced Pickering realtors dedicated to finding you your dream home. We’re experts in Pickering real estate and have been working in the area for years. Whether you’re buying or selling, we pride ourselves on our knowledge and excellent customer service. Contact the Bansal Team today to find out how we can be of service!