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  • Writer's pictureAndrew Sikomas

What is a mortgage pre-approval? How is it different from a pre-qualification?

Updated: May 13, 2021

TL;DR: a fast, easy and free pre-approval is the best way to find out where you stand if you're thinking about buying a home. While not a guarantee of approval and not binding, it is your best way to stay protected from rising rates (they can go up or down rather violently and unpredictably these days) and make sure you're shopping in the right price range (or find out what you can do if you wanted a higher one).

To help in the house hunting process, many home buyers will seek a pre-approval for a mortgage. This helps you determine how big of a mortgage you can afford and, in turn, what you can pay for a property. Another benefit of pre-approval is that if rates rise before you make your mortgage application, the pre-approval rate is locked in for you.

Pre-qualification vs pre-approval

Think of a pre-qualification as an informal crunching of numbers. It's a way of figuring out how much house you might be able to afford. A pre-qualification is an estimate, so it won't be as accurate as a pre-approval. However, a pre-qualification doesn't require a credit check, and less information is needed.

Since no credit check happens at this stage, any numbers, interest rates, or mortgage products discussed can change slightly as more information is added to the application.

A pre-approval is more detailed, so more information and some documentation is usually needed. A credit check is also necessary so that the numbers you are given are exact figures. The process of getting pre-approved for a mortgage gives home buyers some key information they can use in their search. These include:

  • How much you can afford to pay for a home

  • How much your payments will be

  • The mortgage interest rate

Rate hold

Once the process has been completed, you will find out how much you can borrow and the mortgage rates being offered and you will be all set to start your home search. Knowing the maximum you are able to borrow can narrow down the search to homes within that range. You will also have interest rate pricing protection for 4 months so you can shop with confidence without worrying about rising rates. If rates go up, you get your guaranteed rate. If they go down, you get the lower rate.

Pre-approval vs approval

Even if you are given pre-approval for a mortgage, it does not automatically mean you will be fully approved at the time you write a real offer on a real property. Once you make an Offer to Purchase to a seller and have it accepted, the full application including the property details must be reviewed and approved. A property must meet certain criteria for you to be granted a mortgage.

There are a number of other factors that can come into play after the pre-approval is in place that can affect full approval later on:

  • the property you select must meet property requirement guidelines

  • your employment status may change

  • your financial situation or credit report may change

  • mortgage rules can change and sometimes come into effect immediately

It is also good to keep in mind that you don’t need to buy a home that requires you to take the maximum mortgage amount. A pre-approval amount only indicates the most a lender is willing to offer you. Buying a home that is lower than your maximum mortgage approval can ensure that you have enough room in your budget to make the mortgage payments and cover other expenses.

Why apply for pre-approval

Knowing how much you are able to spend on a house can help refine the search. This is one of the reasons that home buyers will apply for pre-approval. It also demonstrates that you are serious about buying a home. Real estate agents will often pay more attention to those who they believe are genuinely interested in making a purchase. In addition, it can give a seller confidence that you will be able to finance the purchase. It can work in your favour if there is another buyer competing for the same property. If interest rates rise, you will be happy that you got a pre-approval and can count on the lower interest rate. If rates fall, you get the lower rate.

How to get pre-approved

If you want to get pre-approved for a mortgage, there are a few different paths you can take:

  • Pre-qualify in a few easy steps to get a sense of where you're at. Just fill out a couple pieces of information (no names, email addresses, or credit checks) and we'll take care of the rest. You won't need to verify income or assets, but you will need that information, along with information about what debts you have.

  • Apply for a Click Mortgage Pre-Approval and complete the application including your SIN and consent to pull credit. We'll process your application and verify income and assets. This is the strongest option to make sure you don't run into any financing surprises later on.

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