Did you know that 75% of Canadians look online for mortgage solutions? If you’re part of that group, you’ve likely come across a ton of information comparing different options you may encounter once you begin the process of applying. Chances are, at some point, you’ve read blogs and absorbed information about preapprovals and prequalification. But how familiar are you with these two steps in the mortgage process and the roles they each play in the bigger picture?
What Is The Difference Between Preapproval And Prequalification?
Prequalifying for a mortgage is the very first step in the process of hunting for a new home. It’s typically quite quick, costs nothing and can be done over the phone. This step gives you an idea of how much you’ll qualify for when it comes to loans. This portion of the process is reliant on data you provide to prove that you’re able to take on a large loan from your lender. This data includes your income, debt, employment information and more – and while it doesn’t result in a guaranteed loan amount, it helps provide you with a ballpark so you know what’s within your realm of possibility as you hunt for a new home. Remember that the insight you stand to gain from this process relies on the accuracy of the information you provide.
The next step of the process is the preapproval, and this is where things get more detailed. While a prequalification is a good indication of creditworthiness, the preapproval is the final, definitive word. This is the part where you’ll have to fill out a mortgage application and provide all the necessary information for the lender to perform an extensive credit and background check. Once that’s complete, the lender will be able to provide you with preapproval up to a certain amount and you’ll now have a better idea of interest rates or fees associated with the process overall.
Keep in mind that just because you’re approved for a certain amount, doesn’t mean you need to shop at the top end of your price range. Depending on the market, you may be able to find a home you love for less money, which will leave you with more cash to finance things like your retirement, a college fund for your children, or finally making that promise to yourself to travel more often.
How Do Preapprovals And Prequalifications Affect Your Credit Score?
Prequalification is intended to give you an estimate based on the information you provided. A mortgage preapproval means that a lender has qualified you for a specific mortgage amount based on your credit history, and your income. Once you move to the preapproval process, you can expect a full credit check and detailed report to be pulled to ensure the information you provided for prequalifying, checks out as accurate.
Is There An Advantage To Completing Both The Preapproval And Prequalification?
The main advantage for completing both is that you’ll have a very clear understanding of what you can afford and what falls outside your realistic realm of options. This will prevent you from wasting time looking at properties that are too expensive and in the end, will speed up the buying process which conveys a sense of seriousness to the seller in the current competitive market.
What are the key takeaways to remember?
Understanding the mortgage process from start to finish, will help you make smarter decisions regarding your finances and how you approach home buying. While there’s a lot of great information on the internet about mortgages, there’s also a lot of misinformation, so if you choose to do your research online, make sure you use reliable sources and always double check with a professional before you make any quick decisions.
Want to learn more about the mortgage process and how to get prequalified? Contact us to get the process started.