So, let's begin.
- Mortgage Pre-Qualification
Pre-qualification for a mortgage is the process of determining how much money a potential home-buyer may be able to borrow from a lender. This process typically involves the lender discussing the borrower's income, credit score, and debt-to-income ratio to estimate the loan value. It is a preliminary step in the mortgage application process and does not guarantee that the borrower will get approval.
Pre-qualification can be done online or over the phone, and it is a good way for borrowers to get a sense of how much they can afford to spend on a home before they start looking at properties. It is more or less a verbal discussion. You can consider pre-qualification as a first step for pre-approval.
- Mortgage Pre-Approval
Pre-approval entails verifications to authorize you for a mortgage loan. Mortgage lenders in Canada examine your financial records, including pay stubs, bank accounts, and tax returns, as well as your credit history. The lender will also verify the borrower's employment and income history.
It gives you an advantage over unapproved and pre-qualified buyers when you're ready to make an offer on your property since it lets the seller know that you're an approved buyer who can afford to buy their house. It can make the home-buying process move quickly and smoothly since the lender has already approved the loan. The borrower can make an offer on a home with more confidence. In some cases, pre-approval may come with a conditional commitment by the lender, meaning the lender is committed to lending the borrower the amount pre-approved, given the borrower meets the lender's guidelines.
It's important to note that pre-approval is not a guarantee that the loan will be approved, as the lender will still need to review the property and appraise it before final approval. Also, the pre-approval is valid for a certain period, usually 60-90 days, after which the lender will need to re-evaluate the applicant's creditworthiness and assess whether the terms and conditions of pre-approval are still valid.
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When Is the Best Time to Get Pre-Approved?
The earliest moment is the ideal time to obtain pre-approval. It gives sellers confidence by demonstrating that you're a serious buyer and are financially prepared to close on a property.
Even if you don't intend to purchase anytime soon, be pre-approved. The itemized loan estimate offers details for arranging your spending and finances before making your purchase.
No matter where you are in the house purchasing process, being pre-approved for a mortgage is the best course of action. Pre-approval doesn't rely on self-reported information to acquire a mortgage loan, in contrast to pre-qualification. It guarantees real estate agents and sellers that you're a strong prospect for a home with extra verifications.
Conclusion
Pre-qualification and pre-approval are both important steps in the mortgage application process, but they serve different purposes. Pre-qualification is a preliminary assessment of how much money a first-time home buyer will be able to borrow, on the other hand, pre-approval is a more in-depth review of the borrower's credit, income, and debts.
Having pre-approval gives the borrower a better idea of how much they can afford to spend on a home. Take advantage of pre-approval to make the home-buying journey a successful endeavour.
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