The Difference Between Being Pre-Qualified and Pre-Approved
April 14, 2023 | Posted by: Keith Leighton
The Difference Between Being Pre-Qualified and Pre-Approved
After eight successive rate hikes, the Bank of Canada held its benchmark policy rate steady to 4.5% in March 2023. As a result, some Canadians may be ready to reassess their home buying plans, which may require some mortgage shopping.
Pre-qualification and pre-approval are common terms you’ll hear in the mortgage space. While both options can be a helpful first step toward securing a mortgage loan, there are some distinctions between mortgage pre-qualification and mortgage pre-approval that are critical for borrowers to note.
What is a mortgage pre-qualification?
Pre-qualification can be a preemptive step in the home buying process, and is meant to help borrowers get a feel for the loan amount they might be able to secure. It’s typically a brief process that involves going over the borrower’s financial situation.
What is a mortgage pre-approval?
Pre-approval is a much more formal and lengthy process. It requires a comprehensive review of income, debts, and assets. Unlike pre-qualification, it calls for a “hard credit inquiry,” so it can temporarily lower your credit score. The approval is usually good for three or four months.
While pre-approval doesn’t necessarily guarantee a loan, it’s a more serious step in the mortgage process, and can help homeowners to close on a home faster once they’re ready to buy. Additionally, the pre-approval process can help borrowers to identify and resolve any issues with their credit.
Pre-qualification vs Pre-approval: Which option is right for you?
Generally speaking, the pre-approval route is for clients serious about their home buying plans. Getting pre-approved can give buyers a competitive advantage in a competitive housing market, and allow borrowers to lock in a more desirable loan amount in an uncertain rate environment.
That said, there are circumstances in which pre-qualification is the better option. For instance, if the borrower is simply sizing up their options, and isn’t planning to purchase for a number of months, or if they have concerns about their credit score.
In any case, whether you opt for pre-qualification or pre-approval, it’s recommended that prospective home buyers work with an expert to assess which option—pre-qualification or pre-approval—is right for you. Beyond that, borrowers should be forthcoming with information when dealing with a mortgage agent.
Buying a home is the biggest transaction of someone’s life, so it’s important to give as much information as you can to your mortgage agent. In the end, your mortgage application is a story. The better you explain your story, the better off you’ll be.
Contact a DLC Ideal Mortgage expert today to get started on your homebuying journey!
