When you’re applying for mortgage financing, pre-qualification and pre-approval are terms you’ve probably encountered before.

Both have their advantages but they’re slightly different from one another. The primary difference is that pre-qualification is faster and less detailed while mortgage pre-approvals are more comprehensive. Ultimately, both are reviews of your financial situation by a lender, determining where your limits are and what’s possible as it pertains to financing the purchase of property. 

Whether you’ve pre-qualified or are pre-approved for a mortgage, please keep in mind that it still shouldn’t be taken as a guarantee you will receive that exact amount.

What pre-qualification or pre-approval does indicate is that you’re a buyer ready to make a purchase and capable of financing it.

What Is Mortgage Pre-Qualification?

With mortgage pre-qualification, you submit your income, bank account info, requested mortgage amount, and other financial data. A lender then conducts a credit check and does analyses to determine the likelihood of you being able to make your payments on time.

Benefits Of Pre-Qualification

  • Unlike with mortgage pre-approval, a pre-qualification credit check is a soft inquiry and will not affect your credit score.
  • It’s fast and easy, and can often be done over the phone with your lender or online. Processing time for some banks can be as little as hours.

What Is Mortgage Pre-Approval?

With mortgage pre-approval, it’s a more thorough look into a borrower’s credit history and financial history. It’s lengthier but why a lot of people go for pre-approval is that it’s for a committed buyer who is ready to make an offer. Pre-qualification does not require a mortgage application but mortgage pre-approval does. In a competitive real estate market like South Etobicoke or Toronto, pre-approval shows you’re ready to make an offer and close.

It is worth keeping in mind that, unlike with pre-qualification, when you go through the process of pre-approval, you have to submit pay stubs and signed tax returns among other documents, and the process can take up to a week or more.

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Benefits Of Pre-Approval

  • Pre-approval is an in-depth look at one’s financial background, providing conclusive information on what you can afford for a specific property. 
  • Mortgage pre-qualification is not enough to convince a seller to seriously consider your bid.

Mortgage pre-approval is a far better route to take in making an offer on a property in a competitive market like Toronto.

Should I Get Pre-Qualification Vs. Pre-Approval?

Pre-qualification is the first step. Pre-approval is the second step. For most new home buyers, that’s how they should look at it. Most use pre-qualification to get an idea of what to expect for a mortgage, what’s possible with their budget, and what homes they can afford. Pre-qualification can be very exploratory by design, giving lenders a chance to provide an introduction to what your mortgage might look like.

When you start to find homes you want to bid on, pre-approval is the better option and more definitive. When you’re eyeing a specific property and want to make an offer, come with pre-approval ready to go. Pre-qualification, by comparison, won’t be taken very seriously next to potential buyers with pre-approvals in hand.

We work with many first-time home buyers and would be happy to sit down and discuss how we can help you on your journey to homeownership! Reach out today.