Before buying a home, many of us would like to know how much we can afford or borrow. So what we do is go off to a bank/mortgage broker/lender to get more mortgage information. Now armed with a whole bunch of info and the amount of money the lender will loan, you run off and call your realtor to look for your dream home…
But, wait a minute…did you get pre-qualified or pre-approved by the lender? What’s the difference you ask and why is it important? Most people think of pre-qualifications and pre-approvals as the same thing, but they are not. The biggest difference is the verification process.
With a pre-qualification, the lender is giving you an idea of the mortgage amount for which you qualify. It does not include any verification of your income, credit rating, or financial situation. This step is for you to discuss your needs and wants with your lender. The lender is not required to loan you money based on a pre-qualification, it just establishes how much money you MAY be able to borrow.
A pre-approval is more in-depth and requires you to fill out a mortgage application. The lender will require documentation that proves your income, etc. They will also pull your credit report to analyze your financial situation. If you are approved for the mortgage amount, you can shop for a house with more certainty that this is the price you can afford.
Beware though at the end of the day, to be sure that you are going to get the mortgage loan, you will need to get a loan commitment from the lender. This is only issued after you have already picked a home and have agreed to the sale price. A commitment letter is only provided when the lender is certain it will lend. Neither a pre-qualification nor a pre-approval will guarantee that you get a mortgage.
If you have any questions, please feel free to contact one of our qualified Mortgage Coordinator at 1-866-521-9557.