Mortgage Pre-approval and Prequalification may sound the same, but they have different meanings. Both are good, but one has more lift than the other. When applying for a mortgage, especially if you are a first-time home buyer, it is essential that you know the difference between the two.
What is Mortgage Prequalification?
Mortgage prequalification is based on consumer-submitted data. It is an initial assessment that gives you an idea of how much you can borrow when you apply for a mortgage. The lender does not include an analysis of the credit report and will only rely on the information you provided.
Prequalification is a valuable tool for home buyers to understand their affordability range and how much they can afford. You can do it online or over the phone; you can get the prequalification letter within three days max.
What is Mortgage Pre-approval?
A mortgage pre-approval is a more formal process. It is verified consumer data. They will conduct a thorough credit check, including reviewing your financial history, credit score, and other documents to determine how much they are willing to lend.
Pre-approval provides more accuracy than Prequalification. It shows that a lender will lend you money to buy a home, subject to specific conditions. It is a more thorough process that will take several days to complete. However, pre-approval provides more confidence when house hunting because you’ll know how much you can borrow and your budget.
Key Differences Between Mortgage Pre-approval and Prequalification
• Verification Process
Prequalification involves the lender making assumptions based on the information you provide. Pre-approval, on the other hand, consists of the lender verifying the information you provide.
• Time
Prequalification takes a shorter time to complete. Online and over-the-phone options are available when applying for Prequalification. They take a shorter time because they only analyze the information you provided. Whereas pre-approval takes longer because your lender will do a thorough credit check.
• Confidence
Prequalification does not guarantee that a lender will approve your loan but give you an idea of your home affordability range. Pre-approval, on the other hand, provides more confidence because they know exactly how much they can borrow and their budget.
• Terms and Conditions
Prequalification gives home buyers a general idea of what they can afford, but it does not guarantee the terms and conditions of the loan. Pre-approval, on the other hand, gives home buyers a clear understanding of the terms and conditions of the loan, subject to specific conditions.
Why Mortgage Pre-approval is Important
A mortgage pre-approval is crucial for home buyers because it boosts their confidence during home buying. A lender’s willingness to lend you money, subject to certain conditions, is demonstrated by a pre-approval. Home buyers can avoid wasting time looking at homes out of their price range thanks to this clear understanding of their budget.
Pre-approval likewise benefits home buyers in a cutthroat real estate market since it shows dealers that they are significant purchasers who can bear the cost of the home. Competing with other buyers who have not been pre-approved may give home buyers an advantage.
Pre-approval Process in Canada
• Gather Your Financial Information
Before applying for pre-approval, you must gather your financial information, such as your assets, debts, and expenses. You’ll need to provide documentation to prove your income and assets income and assets, such as tax returns, pay stubs, and bank statements. It’s essential to have all of this information ready before you start the pre-approval process.
• Find a Lender
Shop around for lenders before applying for pre-approval. Find a lender with rates you can work with. You can work with a bank, credit union, or mortgage broker, whichever works for you.
• Complete Pre-approval Decision
The application must be completed once you have found a lender. In most cases, you will be asked to provide information about your finances and answer questions about your employment, credit history, and the property you want to purchase. This information will be used by the lender to figure out how much they are willing to lend you for a mortgage.
• Wait for Pre-approval Decision
You have to wait for the lender to make a decision after you’ve completed the application. It will take some time to make a decision depending on the documents that are still needed. They will provide you with the pre-approval after they come up with the decision.
• Use your Pre-approval to Shop For a Home
You can use pre-approval to shop for a home. With this, you can break down the houses you can afford. This can give you an advantage in a competitive housing market, as sellers are more likely to accept your offer if they know you have financing.
Conclusion:
While Pre-approval and Prequalification have differences, they are both essential when applying for a mortgage. It will provide home buyers with a clear understanding of the terms and conditions of the loan. This process will also make it easier for you to shop for a home.
Connect with us at Best Rate Mortgage. Call us at (416) 825 0142 and we’ll be happy to answer you mortgage questions.
