Difference Between Pre-Qualified and Pre-Approved

As a homebuyer, you may have heard the terms "pre-qualified" and "pre-approved" in the mortgage process. While these phrases may sound interchangeable, they actually have distinct meanings that can have a big impact on your home buying journey. In this blog, we'll explore the difference between pre-qualifications and pre-approvals and what they mean for prospective buyers.

Pre-Qualification:

The first thing to understand is that a pre-qualification and a pre-approval are not the same thing. A pre-qualification is an estimate of how much a lender may be willing to lend based on your income, debt, and credit score. It's typically a quick and easy process that can be done online or over the phone, and it doesn't involve a credit check or a deep dive into your finances. In other words, it's an educated guess based on the information you provide.

Pre-Approval:

A pre-approval, on the other hand, is a more formal process that involves a credit check, documentation of your income and assets, and an analysis of your creditworthiness. It's a more thorough evaluation of your financial situation, and it carries more weight than a pre-qualification. A pre-approval tells you how much you can actually borrow, and it shows sellers that you're a serious buyer who is ready to make an offer.

So, what does this mean for buyers?

Well, a pre-qualification can be a helpful first step in the homebuying process. It can give you a general idea of how much you can afford and what kind of mortgage you might qualify for. However, it's important to remember that a pre-qualification is not a guarantee of approval, and it doesn't hold as much weight with sellers.

If you're serious about buying a home, it's worth taking the time to get pre-approved. This will involve gathering your financial documents and working with a lender to get a more accurate picture of what you can afford. A pre-approval can give you an edge in a competitive market, as it shows sellers that you're a committed buyer who has already taken steps to secure financing. Also, with a pre-approval in place, you can begin narrowing down what type of home to look for, be confident that you are spending time looking at the right properties and ensure you stay under your max budget. Another benefit of a pre-approval is you can lock in an interest rate (typically for 120 days) so if interest rates increase during your search, you will still get the lower rate that you locked into!

Mortgage:

Another important thing to keep in mind is that a pre-approval is not a guaranteed mortgage. Once you've found a home and made an offer, the lender will need to do a more thorough analysis of the property and your finances before approving the loan. However, a pre-approval can make the process smoother and faster, as much of the legwork will already be done.

In summary, while pre-qualifications and pre-approvals may sound similar, they are two distinct steps in the mortgage process. If you're ready to start your homebuying journey, we recommend you get pre-approved before booking showings so you are set up for success. It's quick and easy and we will walk you through the process to get started. If you need recommendations for experienced and trusted mortgage brokers, please reach out to our team at info@myedmontonhome.ca.