Natasha Shaw

You’ll hear these two terms thrown around a lot, but do you know the difference between the two? They’re both important steps for a first time homebuyer, and a mortgage professional will help guide you through them both.

What is a Mortgage Pre-Qualification?
Pre-qualification is when a mortgage planner or bank assesses your financial picture to determine what mortgage amount you qualify for.

You supply a mortgage planner or bank with your overall financial picture, including your debt, income and assets. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. Mortgage pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.

The initial pre-qualification step allows you to discuss any goals or needs you may have regarding your mortgage. At this point, a mortgage planner can explain your various mortgage options and recommend the type of mortgage that might be best suited to your situation.

Because it’s a quick procedure, and is based only on the information you provide, your pre-qualified amount is not a sure thing – it’s just the amount for which you might expect to be approved. For this reason, a pre-qualified buyer doesn’t carry the same weight as a pre-approved buyer who has been more thoroughly investigated.

What is a Mortgage Pre-Approval?
A pre-approval determines the specific mortgage amount for which you are approved. Pre-approval will also protect an interest rate from 30 to 160 days. Typically it is 120 days.

The other benefit of pre-approval is that when dealing with a potential seller, he or she will know you’re one step closer to obtaining an actual mortgage.

Interest Rates
By locking in an interest rate, you are guaranteed to get a mortgage for at least that rate or better. If interest rates drop, your locked-in rate will drop as well. However, if the interest rates go up, your locked-in interest rate will not, ensuring you get the best rate throughout the mortgage pre-approval process.

The advantage of completing either or both of these steps (pre-qualification and pre-approval) is that you’ll know in advance how much you can afford. This way, you don’t waste time with guessing or looking at properties that are beyond your means. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place.

Pre-approvals are not a guarantee of financing! 

This is important to know because sometimes banks and brokers can give you that impression. The truth is the pre-approval process gives you and your broker a rough idea of what you will qualify for. It should also identify any barriers to being approved for a mortgage, such as damaged credit, unverifiable income, or too much debt. A mortgage pre-approval can’t guarantee financing, but it gives you a much better idea of your chances of being approved.

Pre-approvals, like regular approvals, are subject to certain terms and conditions. 

These conditions usually include things like verification of income, verification of down payment, acceptable property type and location (which can’t be determined until you actually make an offer) and of course, honesty on the application.