Pre-Qualification vs Pre-Approval, What Is The Difference?
Buying a home can be an overwhelming experience, especially when it comes to securing a mortgage. Two terms you’ll often hear during the process are “pre-qualified” and “pre-approved.” While they may sound similar, they have different meanings and implications. In this post, we’ll explore the difference between being pre-qualified and pre-approved for a mortgage.
What is the difference between pre-qualified and pre-approved?
What does it mean to be pre-qualified for a mortgage?
- Definition: Pre-qualification is an initial assessment of your creditworthiness and ability to qualify for a mortgage.
- Process: To get pre-qualified, you’ll typically provide some basic financial information to a lender, such as your income, debts, and assets.
- Result: Based on this information, the lender will give you an estimate of how much you might be able to borrow.
What does it mean to be pre-approved for a mortgage?
- Definition: Pre-approval is a more in-depth process that involves a lender reviewing your credit report and verifying your financial information.
- Process: To get pre-approved, you’ll need to complete a mortgage application and provide documentation such as pay stubs, bank statements, and tax returns.
- Result: If you’re pre-approved, the lender will give you a specific loan amount and interest rate.
What are the benefits of being pre-qualified?
- Understanding: Pre-qualification gives you an idea of how much you might be able to afford and what your monthly payments could be.
- Comparison: You can use pre-qualification offers from multiple lenders to compare mortgage rates and terms.
- Quick: The pre-qualification process is typically quick and easy, often taking only a few minutes online or over the phone.
What are the benefits of being pre-approved?
- Confidence: Pre-approval gives you the confidence to make an offer on a home, knowing that you have financing in place.
- Negotiation: Pre-approval can also give you an advantage in negotiations with sellers, who may prefer a pre-approved buyer.
- Time-saving: Pre-approval can speed up the mortgage process since you’ve already completed much of the paperwork and documentation.
How long do pre-qualification and pre-approval last?
- Pre-qualification: Pre-qualification offers are typically valid for 60-90 days.
- Pre-approval: Pre-approval offers are typically valid for 60-90 days as well, but they may be extended if needed.
Understanding the difference between pre-qualification and pre-approval for a mortgage is an important step in the home-buying process. While pre-qualification can give you a general idea of what you might be able to afford, pre-approval can give you the confidence to make an offer on a home and speed up the mortgage process. Whichever option you choose, It’s important to note that neither pre-qualification nor pre-approval guarantees loan approval. It’s of equal importance to work with a reputable lender and get the best mortgage rate and terms for your financial situation.
Most banks and lenders offer an online pre-qualification tool which you can check if you just want to see where you stand. For instance, this one by RBC will give you an idea of what you can pre-qualify for in minutes.
If you would like more information, we would be glad to connect you with a trusted mortgage specialist(s) who can guide you through the financing process and help you find the best mortgage options for your unique situation.