Is getting mortgage pre-qualification same
as pre-Approval? We will find out now.
Hello welcome to my channel.
This is Sushma Khinvasara
and I am a real estate agent in the Toronto area
Many home buyers especially those
buying for the first time think getting pre-qualified
for mortgage is same as pre-approval.
But is that really so?
Pre-qualification and pre-approval are two
terms you usually encounter when you
go home shopping.
However, many buyers think these
two terms are the same
and even use these terms interchangeably.
If you’re looking to buy a property,
there are important differences that
you should understand.
Knowing basic distinction
between pre-qualification and pre-approval will
help in your home buying decision.
What is pre-qualification?
This is the first step you need to take if
you are considering buying a property or even if
you’re just testing the waters.
Mortgage pre-qualification can be done
over the phone, online or in person
and it gives you a quick
estimate on how much you can
expect to borrow from a lender.
For you to get pre-qualified,
you need to give the lender
or mortgage agent,
your overall financial picture.
It includes your income, assets and debts.
There are things you might want to keep in mind
though as you provide
your financial information to the lender.
First, income is not only about your
regular pay-cheque
but may also include other regular income,
legal payments like alimony
or child support,
other benefits and investment returns.
Second, lenders are mostly interested in
liquid assets only because these can be turned
into cash quickly such as savings account,
stocks and money market bonds.
Third, if the lender asks you to estimate your
monthly debt payments,
you can include monthly payments of all debts
such as credit card,
term loan,
student loan
or car loan.
The lender will then review the information
you provided
and provide you a ballpark figure
of how much you can borrow.
Because pre-qualification depends solely on the
information you provided and does not require a
thorough investigation,
it just gives you
the amount you might expect to be approved but
does not guarantee that you will be approved
for the same amount.
There is no need to hesitate in getting
pre-qualified because it has no effect on your
credit score and it has no cost.
But knowing your pre-qualification loan
amount is not enough and you might not be taken
seriously by sellers
unless you’ve been pre-approved.
What is pre-approval?
This is the second step and the one that will grant
you a conditional commitment to a mortgage.
Unlike the pre-qualification, pre-approval takes the
process to the next level
because it involves
a thorough investigation of your income, assets,
debts, credit history and rental history.
The lender will still want to know your income,
assets and debts but this time
they will ask for proof.
Some of the documents that you might be asked
to provide are identification,
proof of employment,
tax documents,
bank statements, credit information,
real estate and other assets,
and monthly expenses.
The lender will then verify your employment,
income, assets and debts,
and will analyze your credit report as well.
If you meet all the requirements,
you will be given a pre-approval letter
which states the amount and type of mortgage
a lender is willing to offer.
It is important to take note this loan commitment
might be conditional
on the terms provided by the lender.
It is possible that different lenders may
have different interest rates and conditions.
You might want to shop around and talk to
several lenders to make sure you’re getting the
best mortgage product for your needs.
Best way to do that is to contact mortgage broker.
They have access to a wide network of lender
and can get you best rates and terms.
You are not obligated to get a home loan
from the lender who pre-approved you.
The benefits of getting pre-approved is that
you will know what is the maximum amount of
mortgage you could qualify for making an
estimate of your mortgage payments,
and lock in an interest rate for 60 to 120 days,
depending on the lender.
You can use the pre-approval letter
as an advantage when making offers on homes
because it indicates that you are a serious buyer.
The other benefits of getting pre-approved is that
you won’t waste time looking at homes
that are beyond your price range
and helps you to close in
faster in a competitive market.
Which one should you get?
If you are a first-time buyer
and not sure yet if
you are ready to buy,
then it is better for you to get pre-qualification.
This does not affect your
credit score and does not have many
requirements but will still be able to give you
an idea about
your financial readiness in getting a home.
Now, if you are seriously considering
buying a home and ready to buy within 3 months,
then the best option for you is to get pre-approval.
Having a pre-approval letter is especially helpful
when the housing market is hot where homes sell
fast within hours or days of being listed.
If you are confident with your financing,
you have an advantage over other buyers.
In conclusion, getting pre-qualified
and pre-approved for a mortgage
both give home buyers a good idea
in advance of how much
they can afford for a home.
However, most sellers will be more willing to
negotiate with those who are pre-approved.
Also ask your real estate agent which of the two
is acceptable to home sellers in your market
so that when the time comes
for you to make an offer,
you’ll have what you need to give the sellers
the assurance that you’ll be approved for a loan.
I hope you liked this information.
Thanks for watching this video.
See you next time.