Can you think of anything else that is as overwhelming as buying a home? Buying a home is one of the most important financial decisions you will make in your lifetime. You could be hearing new words as you begin house-hunting and communicating with real estate agents and mortgage brokers. It is important to learn the commonly used mortgage terms if you are planning to buy a home. A mortgage is a long-term commitment, and understanding the industry lingo will help you understand the financials and make an informed buying decision. You don’t want to be thrown entirely off while working on your mortgage application.
If you have already begun your online search, you would have come across terms such as pre-approval or pre-qualification. Most of the home buyers are often confused with these two terms and clarify them with mortgage brokers.
A pre-qualification is generally a quick and simple process that involves the home buyer submitting their information regarding their financials, including their income, assets and debt. The lender will assess the information provided and an approximate projection of a mortgage they will qualify for to the prospective buyers. A pre-qualification doesn’t require a credit check and can be completed easily online to generate a number to give you a general idea about what you can expect to be eligible for. However, the number provided indicates the mortgage amount is subject to change. It also means it’s less reliable than a pre-approval as it’s just an estimate that can give confidence to an agent or seller as proof you’re working with a lender.
A pre-approval is when a prospective home buyer is more serious about buying, and the lender provides a precise amount of money that they can expect to be approved for. It involves a detailed investigation and verification of the financial information, documents and checking your credit. It helps you get a better idea about what the interest will look like on your mortgage and hold the rate for 60-120 days depending upon the lender and your mortgage application. It applies for fixed-rate mortgages, and if the fixed-rate goes up between your pre-approval and approval, you are safely locked into your pre-approval rate. However, a rate hold doesn’t guarantee your approval of the mortgage. You can still be refused on several criteria, including if your financial condition has changed since pre-approval.
You may ask why to get pre-approved? A pre-approval can save you time during house-hunting as you are aware of the affordability. You will have clarity about your monthly payment amounts and the down payment. It shows seriousness as a home buyer, especially if financing approval is a condition of purchase. It also allows you to negotiate with the seller if you have a better financial standing than other prospective buyers. At absolutely no cost to you are pre-approved, and you’re not obligated to accept the mortgage.
A mortgage pre-approval typically takes a bit longer than pre-qualification. However, it can take even longer in some particular circumstances, such as if you are self-employed or have poor credit. After the pre-approval process, you’ll receive a conditional commitment in writing for a specified loan amount. Hence, it is advised to get organized with your documents in advance while you begin house hunting.
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If you’re ready to get started with your mortgage process, feel free to reach out to us for any questions related to home buying. We can help you to get all your mortgage-related queries answered. You can reach us at 905.997.7001 or email us at firstname.lastname@example.org to begin your home buying journey.