If you’re ready to make your dream of owning a home a reality, you’ve probably already heard that you should consider getting prequalified or preapproved for a mortgage. It’s time
Mortgage: are you pre-qualified or pre-approved?
Dated: October 25 2020
If you’re ready to make your dream of owning a home a reality, you’ve probably already heard that you should consider getting prequalified or preapproved for a mortgage. It’s time to understand exactly what each of those terms means and how they might help you. And when you’re working toward a goal this big, you want every advantage.
What is mortgage pre-qualification?
When you want to talk to a lender to establish a general range of home prices, you can get prequalified, which is simply a lender’s estimate of what you could potentially borrow.
Prequalification is an early step in your homebuying journey. When you prequalify for a home loan, you’re getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check.
Prequalification is also an opportunity to learn about different mortgage options and work with your lender to identify the right fit for your needs and goals.
This can be completed easily and conveniently online, in person, or over the phone in just a few minutes with basic information like your income and expected down payment.
What is mortgage pre-approval?
When you want to give yourself a competitive edge over other buyers in the market, you can get preapproved. Having a preapproval lets sellers know that you already qualify for the home financing which greatly increases your chance of having your offer selected.
Preapproval is as close as you can get to confirming your credit worthiness without having a purchase contract in place.
What to provide to your lender to get pre-approved
Before pre-approving you, a lender will look at your current assets (what you own), your income and your current level of debt.
Lenders look at every detail of your finances when granting preapproval. You might be asked about a car loan payment you made with a credit card, for example. Be prepared to answer lender questions as soon as they come up.
You’ll need to provide your lender or mortgage broker with the following:
- proof of employment
- proof you can pay for the down payment and closing costs
- information about your other assets, such as a car, cottage or boat
- information about your debts or financial obligations
For proof of employment, your lender or mortgage broker may ask you to provide:
- proof of current salary or hourly pay rate (for example, a current pay stub and a letter from your employer)
- your position and length of time with the organization
- Notices of Assessment from the Canada Revenue Agency for the past two years, if you're self-employed
For proof you can pay the down payment, your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments.
Your debts or financial obligations may include:
- credit card balances and limits, including those on store credit cards
- child or spousal support amounts
- car loans or leases
- lines of credit
- student loans
- other loans
Unlike prequalification, preapproval is a more specific estimate of what you could borrow from your lender. With such documents as the ones listed above you will complete a mortgage application. The lender will verify the information you provide and determine exactly how much you can be preapproved to borrow. They’ll also perform a credit check.
If you’re preapproved, you’ll receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount, good for a specified time frame, usually between 60 and 120 days. Then you can lock your rate and complete your application.
Getting preapproved is a smart step to take when you are ready to put in an offer on a home. It shows sellers that you’re a serious homebuyer and that you can secure a mortgage – which makes it more likely that you’ll complete your purchase of the home.
|Benefits||You can start house-hunting knowing how much you might be able to borrow.||You’ll be ready to make an offer with confidence—and gain a competitive advantage|
|Process||Provide basic information to a lender and quickly get a prequalification amount.||After submitting documentation to a lender, you should receive a decision within 10 business days.|
|Documentation||Answer questions for this process, plus a credit check.||Provide proof of financial details, plus a credit check.|
If you are looking for a property, let's talk! I can guide you through the whole home buying process and connect you with knowledgeable mortgage brokers that will find the lowest interest rates for you!
You may qualify to borrow more money than you are comfortable spending on a home. But that doesn’t mean you have to spend more. It’s a good idea to limit your home search to houses priced at an amount you can comfortably afford.
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