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Mortgage Pre-qualification vs. Pre-approval (The 1 BIG Difference You Need to Know)

Mortgage terms are confusing. Also make sure you catch up on all the mortgage basics and once you understand all of that (I’ll wait here while you go, all good?) we can jump into Mortgage Pre-qualification vs. Pre-approval.  It may not like seem very big, but the differences are very important.

Mortgage Pre-qualified What does it mean?

When you get pre-qualified for a mortgage you provide the bank or mortgage broker your income, assets and debts. Based on that information the lender will pre-qualify you for a tentative amount towards the purchase of a home.

Here are a few things to consider when getting pre-qualified for a mortgage

  • The lender evaluates assets, debt, and income to give you a number that the bank is willing to lend you
  • There is no credit check involved at this stage
  • There are no requirements for proof of income, debts, or assets
  • There is no evaluation on what you have saved for a down payment
  • This process is basically entirely based on info you provide the bank, without verification on the above mentioned info


Plain English Explanation of Mortgage Pre-qualification

What this actually means is in order for you to be pre-qualified, you provide your bank with the info they need to decide how much mortgage they’re willing to give you, without them actually verifying any of information.

There is no checking on facts or anything. Which means there is no obligation for the lender to actually lend you this amount.

If you’re being honest in what you’re telling the bank, this number should reflect your pre-approval number fairly accurately, assuming you have an appropriate down payment and decent credit.

At face value though, getting pre-qualified isn’t a whole lot different than punching your info into a mortgage calculator, you’re just getting the results from a real person which can definitely add some additional confidence.


Mortgage Pre-approval:

A mortgage pre-approval on the other hand is a more in-depth process. It’s also what we recommend doing before going house shopping. The two big advantages of having a pre-approval over being prequalified are:

1. You’ll have much more confidence in the price range you’re looking in, knowing that you should have no problem getting a mortgage for that amount

2. You actually have more buying power. If you do make an offer on a home (especially in a tough market where there could be multiple buyers), the seller will give your offer more weight because they know that your financing won’t fall through


What are the main differences with getting pre-approved?

  • You need to fill out a mortgage application which usually carries a small fee
  • You must provide proof of assets, liabilities, income and debt
  • There will be a credit check on your credit rating and your credit history
  • You will find out what the interest rate is and usually be able to lock in that interest rate for a period of 30-120 days
  • You will also receive a letter of approval (stating what you’ve been approved for as well as the rate and how long that rate is good for)


What You Need to Provide for Your Mortgage pre-approval:

  • Record of employment
  • Proof of income
  • Account locations and numbers of all of your bank accounts and investments
  • Proof of assets: vehicle, boat, ATV, retirement savings account, real estate investments etc.
  • Proof of liabilities: credit card statements, line of credit, car loan, student loan, child support etc.


What can happen after you get pre-approved for a mortgage

Once you’ve been pre-approved for a mortgage, unfortunately, this still doesn’t guarantee you a loan. The reason for this is that pre-approval doesn’t take into account the physical property.

You could have a home that has a low mortgage value, but is extremely expensive to run. Or, you could have a seller listing a home for more than it was appraised for and the banks don’t like to lend more than appraised value.

All that being said, in my experience, it’s been rare that someone gets pre-approved and then turned down at the time of purchase.

Given that most people’s price range that they’re comfortable with is lower than what the bank is willing to lend, this puts buyers in a position where they have some wiggle room anyway and won’t be over mortgaged.


Bottom Line Mortgage Pre-qualification vs. Pre-approval

While getting pre-qualified for a mortgage can give you an idea of what you can afford, it is best to be pre-approved before you go looking at houses so that you know with certainty how much house you can afford and how much of a mortgage you will qualify for. As for the 1 big difference you need to know when it comes to pre-approval vs mortgage pre-qualification, pre-approval is the one that counts when you want to buy a house, pre-qualification is good for when you are saving for your down payment.

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