Pre-Qualification Vs. Pre-Approval
If you’re a first time home buyer or have simply never heard these mortgage terms before, they may seem so similar that they become confusing. You’re not alone. Let’s distinguish the difference between a mortgage rate hold and a mortgage pre-approval as simply as possible.
Rate Hold
A rate hold is a length of time lenders will hold a quoted rate while you look for a home. A lender will offer you a rate hold, also known as a pre-qualification (the interest rate at which you will be paying back your mortgage), usually for a period of 120 days. At this point, you can have a ballpark idea of how much you will be able to afford and shop for a house within your price range.
To give you this rate hold, the system that lenders use only analyzes the basic criteria. So, no documentation will be received or reviewed. This means that it really isn’t that much work for you to get a rate hold from a lender.
But, it’s important to know that this rate hold does not guarantee that the lender will approve your request for financing at that rate. Why? There is no underwriting process and therefore the lender isn’t able to check your financial credibility.
If you’re confident that you meet the financial requirements for an optimal interest rate, then a rate hold could be a good option for you.
Summary
No documents required to get a rate hold
Holds a rate for a period of up to 120 days
No underwriting process
Rate holds do not guarantee that you will be approved for financing at that specific rate
Gives you an approximation of how much you can afford based on the estimated interest rate at that point in time
Pre-Approval
A pre-approval is a more formal process that involves the lender giving an in-principal commitment. To obtain a pre-approval, it requires a more in-depth understanding of your specific financial situation. With that being said, you will be required to submit a collection of documents that help lenders assess your financial stability and determine how much and at what interest rate you will be approved for a mortgage.
Considering a pre-approval is assessing your specific situation, the rate you receive will be guaranteed for the period that the lenders have agreed to hold it for (between 30-120 days). It helps narrow down exactly how much you can spend on a house while you're shopping.
A bit of background on the approval process
There are 4 Pillars to an Approval:
Employment
Source of Down Payment
Credit History
Subject Property
The pre-approval process considers the first three pillars: employment, source of down payment, and credit history. This is why a pre-approval is a great idea when you have not yet found the specific home you want to buy. Once you’ve found your ideal home, we conquer the last pillar and provide details of the subject property to the lenders for them to finalize your mortgage approval.
Summary
Guarantees your rate for the period of time agreed by the lender, in which you are protected by any rate increases.
Requires you to provide a collection of documentation to assess your current financial situation.
Lets you know exactly how much you qualify for so you can shop with peace of mind.
How do I know if I’ve received a pre-qualification or a pre-approval?
Have you provided documents to your mortgage expert? Documents such as tax forms or employment letters/history? If not, then you probably only received a rate hold and not a pre-approval.
The easiest way to find out is to ask your mortgage expert. That is why we’re here – to help you navigate the mortgage process with the guidance of our expertise in the industry. There’s no need to go through it alone. Book a call with us at Weninger Mortgages today so we can help you take control of your financial future.
