Purchasing a condo or loft can be confusing with all the different terms and requirements. Two steps involved in the mortgage process are pre-qualification and pre-approval. But what’s the difference between being pre-qualified and pre-approved?
Prospective buyers should consider getting pre-qualification at the onset of their home-buying process. It allows them to consider their budget and gain insight into their mortgage options.
Then, buyers should consider getting pre-approval when they are more involved in the home-buying process, ideally within three months of the expected purchase date of their new condo or loft. It allows them to understand their financial position better and narrow their options.
Getting pre-qualified for a mortgage is the first step in the process and is a more casual version of being pre-approved. In the pre-qualification process, an aspiring homeowner would provide a general overview of their finances to the lender, including income, assets, and debt. It does not require a credit check. The lender would then review and assess the financial information and give an estimate of the mortgage amount the borrower could be eligible to receive. Still, this amount is subject to change upon pre-approval.
Pre-qualification can often be done with the lender online or over the phone at no cost. It only takes about one to three days to get a pre-qualification letter. Pre-qualification is a prime opportunity to talk with your lender about your specific mortgage needs and gain insights into the most suitable options available from your lender. Most importantly, it gives you a general idea of the size of the mortgage that you will be eligible for and be able to afford.
Getting pre-approved for a mortgage is the next step in the process and is much more involved than being pre-qualified. While pre-qualification indicates a potential borrower’s ability to obtain a mortgage, pre-approval gives a more definitive picture. In the pre-approval process, the aspiring condo or loft owner completes an official mortgage application and supplies the lender with all the necessary documentation to perform an extensive credit and financial background check. This could include:
- Proof of employment
- Proof of capital to pay closing costs
- Expenses and financial obligations, including:
- Child or spousal support
- Student loans
- Lines of credit
- Car loans
- Credit card balances
Note that the credit check is a soft credit check and will not affect your credit score.
The lender may require additional documents to verify your employment, such as recent pay stubs, a Record of Employment (ROE), or a Notice of Assessment from the CRA if you are self-employed. Once they have reviewed and assessed the documentation, the lender will offer mortgage pre-approval for up to a specified amount. It is possible to get more than one pre-approval by exploring various lenders.
Pre-approval also offers a better idea of the interest rate you can expect to be charged on your mortgage. Lenders will provide a conditional commitment in writing for an exact mortgage amount, allowing borrowers to look for homes at or below that price level. Some lenders also allow borrowers to lock in a fixed interest rate, valid for 60, 90, or 120 days. However, a rate hold does not guarantee mortgage approval, and you can still be refused if there are changes in your financial situation.
A Breakdown of the Differences Between Pre-Qualified and Pre-Approved
While pre-qualification and pre-approval both provide mortgage amounts that a borrower can reasonably expect to receive, there are several differences between them:
Pre-approval requires filling out a mortgage application and a credit check. It may also require paying an application fee. Pre-qualification does not have these requirements.
Pre-qualification takes about one to three days, while pre-approval can take up to two weeks.
Pre-approval requires much more extensive documentation on finances, credit, debt, and employment. Pre-qualification only requires general answers without documentation.
Pre-qualification provides a rough estimate of the mortgage amount you can expect to be approved. Pre-approval provides a calculated estimate of your mortgage amount, complete with a written commitment from the lender.
Pre-approval includes interest information with the potential option to lock in your interest rate for up to 120 days. Pre-qualification does provide information on interest rates.
While pre-qualification and pre-approval are sometimes used interchangeably, they are different from each other, and both should be completed in the mortgage application process. By getting pre-qualified and then pre-approved, you will be provided with reliable information on the size of the mortgage you can receive and the interest rate.
If you want to buy or sell a Toronto condo or loft, contact Casey Ragan at 416-486-5588 or by email at firstname.lastname@example.org
“Toronto’s Condo Authority”