Many homebuyers are confused when it comes to the two terms “pre-qualification” and “pre-approval” as they start their search for a new home. Although the terms are often used interchangeably, they are actually very different. To add to that, there is also a difference between a pre-approval, also known as a rate hold, and a fully underwritten pre-approval – make sure you know which one you have!

Mortgage Pre-qualification

Definition:

  • Non-binding estimate of how much you qualify for
  • Can be done quickly with only a conversation

Purpose:

  • Gives you an idea of what price range of homes you may qualify for
  • Provides an opportunity to learn about the process, and what may impact your qualification

What is required:

  • Basic information such as income, assets, debts
  • No paperwork
  • No credit check

Mortgage Pre-approval

Definition:

  • Strictly a rate hold for 90 to 120 days, depending on the lender

Purpose:

  • In an increasing interest rate market, gives you rate certainty
  • Can show a buyer you are serious about buying

What is required:

  • Credit check
  • Minimal additional documents, if any

Mortgage Underwritten Pre-approval

Definition:

  • Not only is there a rate being held for 90-120 days, but someone reviewed all of your paperwork and asked all of the relevant questions so they can be sure of what amount you qualify for

Purpose:

  • Gives you confidence in what you qualify for when you are shopping for a home
  • Gives you and your broker/lender a clear picture of your finances
  • Allows you to rectify any financial errors that may have been turned up in the process of reviewing your documents

What is Required:

  • Credit check
  • Income documents such as employment verification letter, most recent pay stub, two years of income tax information (Notices of Assessment and T1s General), especially for those that earn an hourly wage, bonuses, commissions or are self-employed
  • Additional documents will be required if you earn, and you need to use for qualification purposes, Canada Child Benefit, child and/or spousal support and income from rental properties
  • Proof of down payment including a minimum of 90 days of statements from your bank or investment account showing all transactions, your name and the financial institution and a paper trail for all large deposits into the account – as required by the Anti-Money Laundering and Terrorist Financing Act.
  • Gift letter and proof of deposit of those funds into your account, if any of the down payment is coming from a gift
  • If you own additional properties then you will also need to provide mortgage statements, current year’s property tax bill, proof of condo fees, if it’s a condo, and listing sheet and firm offer to purchase if this property is to be sold

Many homebuyers are disillusioned with their bank when they are told they are “pre-approved” only to be declined when they find that perfect home and make an offer. “They told me I was pre-approved!” This is why it’s important to understand what exercise your bank has gone through prior to in order to say you are “pre-approved”.

I will fully underwrite your file at pre-approval because when I say you qualify, I want to be 110% sure. I don’t want you falling in love with a property that you can’t qualify for. Reach out to me for a fully underwritten pre-approval!

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