Are You Pre-qualified or Pre-approved?
Bill: There is some confusion out there about the difference between the terms Pre-qualified and Pre-approved. Can you help to differentiate between the two?
Josh: Both these terms are now used to describe the action of seeking a mortgage approval before actually negotiating a property purchase. Unfortunately, in most cases, the borrower is not really fully approved for the mortgage and the lender does little or nothing to actually qualify the borrower.
What really happens is that the typical lender now provides an interest rate guarantee for a period of time, usually to a maximum of 120 days. The borrower is advised that they are pre-approved and can begin shopping for a home.
At the pre-approval stage, many lenders typically do not review credit or even determine if the client meets their guidelines for income and down payment. Lenders begin the actual qualification process when the file goes 'live' (meaning the Borrower now has an accepted Contract of Purchase). At this point the lender will begin a serious examination of the borrower's qualifications and may refuse to proceed with the pre-approved mortgage for a wide variety of reasons. Because of this, it is very important for purchasers to keep their offer to purchase “subject to mortgage approval” or “subject to financing.”
If rates have risen since the original pre-approval and the lender now declines the mortgage, the client may no longer be able to get as good a rate elsewhere. Borrowers can reduce the chance of disappointment and get full approval faster by working with a thorough broker early in the process. Such a broker will recognize potential concerns and address them directly with lenders at the time the pre-approval is requested. It may even be prudent to gather employment and income documentation at this stage, particularly for individuals who are self-employed or have had changes or inconsistencies in income or employment. Gathering documents early also helps reduce stress and waiting time after that hard search for the right property at the right price!
An experienced professional and will assist in reviewing and advising you in the process. You will be doing yourself a favour by reviewing your situation thoroughly before you write that offer!
Joshua Ward, Mortgage Depot, 250-886-7172
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