Pre-Qualification vs. Pre-Approvals: What’s the Difference?
“Is a pre-qualification the same as a pre-approval?”. As Edmonton Real Estate Pros, this is something we get asked a lot. And because there are some big differences between the two, we thought we’d shed some light on the subject. Here’s what you need to know about mortgage pre-qualifications and pre-approvals.
What is a pre-qualification?
In short, a pre-qualification is an estimate of how much home you can afford. A lender will take a high-level view of your current income, debt and assets and come up with a ballpark figure as to how much they’d be willing to lend you. What a pre-qualification doesn’t do, however, is take a deeper look at your credit or finances. It’s simply a preliminary guess based on the information you’ve provided.
Why do I need one?
While a pre-qualification serves only as an approximate of what you could actually afford, it’s still a great first step! A pre-qualification will either: a) give you the confidence you need to move ahead with a mortgage pre-approval or b) give you an idea as to whether or not you need to improve your finances before applying for a mortgage loan.
How do I get pre-qualified?
Quick and easy, you can get a pre-qualified online, over the phone or through a one-on-one meeting with your lender. For this, you will need to know your current annual income, debt load and assets.
What is a Pre-Approval?
Here again, a lender will review your income, debt and assets. This time, however, the lender will take a much deeper look at your finances, including your credit history. From here, if you meet the lender’s requirements, you’ll be issued a pre-approval letter. Good for 30-120 days, this letter means you have been approved for a home loan at a locked-in rate.
Why do I need one?
A pre-approval letter won’t just prevent you from looking at homes outside your price range (above or below). It’s also imperative to have if you want to be taken seriously by Edmonton home sellers. When receiving an offer, they want to know you already have your finances in check - and that they don’t have to worry about the deal falling through because you didn’t secure a mortgage loan ahead of time.
How do I get pre-approved?
Working directly with your lender, you’ll need to provide the following (according to the Government of Canada):
- Personal identification
- Proof of employment
- Proof of down payment and closing costs
- Information regarding assets
- Information regarding debts including:
- Credit card balances
- Lines of credit
- Child or spousal support
- Car loans
- Student loans
- Any other loans
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