Even if it’s not your first time as a homebuyer, there are many common questions that people have regarding mortgage rates and the steps necessary to secure a property.

For instance, when it comes to mortgage Pre-qualification, Pre-approval, and Rate-holds, the difference between the three is a bit fuzzy for most people. Here’s what everyone should know about each one: 

What does it mean to pre-qualify?

Getting pre-qualified for a mortgage is regarded as the preliminary step in the homebuying process. This initial step should not be confused with getting pre-approved which comes later on. A mortgage Pre-qualification is an easy process that can be done online or over the phone, and it won’t cost you anything. This step takes just a few minutes, as it is simply a quick overview of your financial situation including your income, assets and debt.

Your credit report isn’t factored into Pre-qualification, and your Pre-qualification Report will not provide you with detailed insight into how much home you can afford. However, this stage of the process is your chance to let me know about any specific needs or goals you may have. I can also give you a good idea of the mortgage rates and options most suitable for you. You will also receive an estimate of the mortgage amount you are likely to get approved for.

What does it mean to get pre-approved?

The Pre-approval stage gives you a more in-depth look at where you stand financially. Many serious borrowers regard the Pre-approval process as the first step towards the goal of securing a mortgage approval. A few lenders still offer a traditional Pre-Approval Commitment letter, which is a conditional guarantee that the lender will accept your application if you provide information that is consistent with your supporting documents and your borrower profile meets their lending criteria. However, this Commitment is not the norm; most lenders no longer rigorously examine your supporting documents upfront. Instead, many now provide Rate-holds. If we were to work together for this process, I would pre-approve you and bring up apprehensions a lender may have with your capability of managing a mortgage. Doing this will equip you with valuable information such as the type of home you can afford and the mortgage payments you can reasonably handle. You will need to present me with specific documentation (including an official mortgage application) to prepare for your new lender, which will be followed by an assessment of your financial status (including current credit rating and report). Please note that if you pull your credit report more than three times within six months, this may lower your credit rating. Rest assured that to identify your ideal lender option, I may only need to pull your credit report once. If you’re interested in getting pre-approved, don’t hesitate to reach out to me!

The handful of lenders that do provide a Pre-approval will likely offer a mortgage rate guarantee for a set length of time, which protects you from possible rate increases – this resembles a Rate-hold, which is explained below. This process generally has no application fee, and you will in no way be obligated to me or the lender.

Getting pre-approved gives you the freedom to search for a home valued at or below your purchase price based on a current assessment of your financial profile.

What is a mortgage Rate-hold?

A Rate-hold (offered by some lenders) is a specific mortgage rate that is locked-in by the lender for a certain number of days. Usually, a Rate-hold guarantees your mortgage rate for up to 120 days, but 90- and 60-day Rate-holds are also common. The main benefit of a Rate-hold is having access to your locked-in mortgage rate if mortgage rates increase within your Rate-hold period (or the discount against the prime rate if you choose a Variable rate). In the case of mortgage rates declining, you will still have access to the lower mortgage rates currently on the market, meaning there is no downside to getting a Rate-hold.

Although a Rate-hold guarantees you an interest rate for a specified period, it does not mean your mortgage application has been approved. A lender may refuse to lend to you if you fail to meet specific criteria, which is why getting pre-approved is strongly recommended. Conversely, with some lenders, when you get pre-approved, you can be automatically signed up for a Rate-hold.

How long does a mortgage Pre-approval take?

While getting pre-approved typically takes a few days, it may take longer in certain circumstances, e.g., if you are self-employed or have poor credit.

You will need to provide me with documentation to prove your identity, income and assets. Although it may take some time, it’s worth ensuring that you have all of your documents (such as a letter of employment and relevant bank statements) in order. Your lender and I will also require enough time to review your application, check your credit report and find the best mortgage rate and product you qualify for.

Once you have purchased a home and are ready to get a mortgage, you will have to go through the full mortgage application and underwriting process. It could take anywhere from a few days to several weeks to get through all of this. Fortunately, you will already have submitted most of the necessary documents through the Pre-approval process with me, saving you valuable time at this stage.

How long is a mortgage Pre-approval/Rate-hold good for?

Your Pre-approval or Rate-hold depends on the lender. The typical approval period is 90 or 120 days, giving you plenty of time for house hunting. If finding your ideal home takes you longer than your Rate-hold period, you may be asked to re-submit documents.

The caveat to this is a noticeable change in your income or assets. A mortgage Pre-approval/Rate-hold is based on your financial situation at the time it’s given. A change in employment status or switching jobs, buying a car, taking on a new loan, or getting divorced could cause your Pre-approval to be denied. Getting denied can happen even after your mortgage is officially approved. To ensure a smooth process, please avoid major financial decisions or purchases immediately after getting pre-approved.

Note: Some lenders do not offer Rate-holds or Pre-approvals and instead only accept live files where you’ve already located a property to purchase, have an accepted offer and have signed an agreement of purchase and sale.

Mortgage Pre-qualification vs. Pre-approval

As you probably know by now, Pre-qualification is not the same as Pre-approval. When I pre-qualify you for a mortgage, I only look at a snapshot of your financial status. At this stage, I can only roughly estimate the mortgage you can afford based on how you answer several questions about your job, income, assets, downpayment, debt and expenses. Getting this part out of the way before you even start searching for a home will give you an idea of what’s within your budget, and it will likely be more helpful than a mortgage affordability calculator. Pre-qualification can also raise red flags sooner than later, giving you time to make necessary changes. 

A Pre-approval, on the other hand, is primarily based on a thorough look at documentation proving your financial situation. Pre-approval is a more formal step toward getting a mortgage, and it can also give you bargaining power when buying a home.

The Bottom Line

Knowing the right terms is the first step to getting a great deal on your mortgage. A Pre-qualification is a quick investigatory tool for homebuyers, while a Pre-approval or Rate-hold is a more formal process that may lock in a rate for a given number of days. Wherever you’re at in the homebuying process, feel free to get in touch!

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