Getting pre-approved or pre-qualified for a mortgage is one of the first major steps when buying a home. However, most buyers struggle to understand each route’s crucial differences and benefits. Without clarity on these mortgage fundamentals early on, your dreams of homeownership could be severely impacted.
This guide provides a look at mortgage pre-approval vs pre-qualification in Canada. You’ll learn:
- Exact definitions of what each entails
- Benefits at different home buying stages
- Key differences between the two main options
- Ideal timing to pursue each one
- How to maximize your success with both
Understanding these critical distinctions will empower you to strategically position your journey to smooth approval for the maximum mortgage borrowing potential.
Are Mortgage Pre-Approval and Pre-Qualification the same in Canada?
While lenders and buyers often use pre-qualification and pre-approval interchangeably, there are notable differences between the two processes.
Mortgage Pre-Qualification
Pre-qualification provides an initial estimate of the maximum mortgage amount you may qualify for. It’s a very casual calculation, usually verbal. With pre-qualification, you provide basic details on your finances to a lender, such as your Income, Assets and Existing debts.
The lender then makes a rough estimate of your mortgage affordability. This usually only takes a few minutes and can be done online, over the phone or in person.
Pre-Qualification Process
When going through mortgage pre-qualification, you must supply information like your annual income, employment details, current debts, and assets. Many lenders allow submitting this through a quick and convenient online form.
Be prepared to provide items such as:
- Most recent pay stubs
- Bank account statements
- Investment portfolio balances
- Credit card minimum payments
- Auto loan or line of credit balances
Depending on the provider, your lender will review your submissions and details to produce a pre-qualification letter estimate, usually within minutes up to 48 hours. This will contain important parameters like:
- Estimated maximum mortgage amount
- Projected interest rates
- Potential monthly payments
- Pre-qualification expiry date
While the rate and amount are rough estimates and not guaranteed, this information creates an initial foundation for your home-buying budget.
Mortgage Pre-Approval
Compared with mortgage pre-qualification, mortgage pre-approval is a full-fledged mortgage application that provides a reliable figure for the maximum amount you are approved to borrow for a mortgage. Providing complete, accurate documentation allows your lender to thoroughly assess and decide the maximum mortgage you qualify for.
The pre-approval letter will confirm this amount, projected payments based on current rates, terms and conditions, and the period for which the pre-approval is active.
What’s the difference between mortgage pre-approval and pre-qualification?
Now that you understand both terms, let’s examine the main differences between getting pre-approved and pre-qualified for a mortgage.
Application Process
The application process differs significantly between pre-qualification and pre-approval. Pre-qualification only requires answering basic questions about your current income, assets, and debts. It helps you determine price ranges on which to focus your home search.
Pre-approval for a mortgage is more involved than pre-qualification. It necessitates a comprehensive application, documentation, and lender verification across your financial profile. Your lender will examine critical financial credentials, including Income, Credit, Asset, and Liability Documents.
Time to Complete
You can receive a pre-qualification letter with estimated mortgage amounts in minutes up to a few days. Pre-approvals take longer, typically 1-2 weeks, for the lender to carefully validate all submitted documentation.
Credit Check
Pre-qualification may perform a soft credit check with no impact on your score. Pre-approvals perform a hard credit check that could cause a small temporary drop but allow the lender to review your actual credit report details.
Reliability
The pre-qualified amount is a rough estimate and not guaranteed. With pre-approval, you receive a reliable figure that is the guaranteed maximum you’re approved for, contingent on your situation and accurate documents.
Locking Interest Rates
Pre-qualification only provides sample rates that could drastically change. Pre-approvals permit locking in an interest rate for 60-130 days, depending on the lender.
Validity Period
Pre-qualification does not have a concrete validity period; it is a rough estimate. Pre-approvals are officially valid for 90-120 days on average, with the exact period depending on your lender.
Process Commitment
Pre-qualification is quite informal and optional, with no obligations. Since pre-approval requires an extensive application, it represents a more serious buyer commitment when actively planning a purchase. Much of the approval work is done upfront, allowing you to move quickly with an offer on a home.
When Should You Get Pre-Qualified or Pre-Approved?
Whether to pursue a pre-qualification or pre-approval process depends on your current home-buying stage.
Key Times to Get Pre-Qualified
Just Starting Your Research
When you’re at the beginning phases of exploring home ownership, pre-qualification allows you to get an initial estimate without commitment. This helps set expectations for budgets and mortgage affordability.
Unsure When You’ll Buy
If you may not purchase for several months or over a year, getting pre-approved doesn’t make as much sense since it’s only valid for 90-120 days. Pre-qualification provides estimates without timeline pressures.
Comparing Multiple Lenders
Those seeking to explore different lenders, rates, and products can get pre-qualified from several without impacting your credit. This allows you to contrast options early on.
Want Very Rough Estimates
Pre-qualification amounts are very rough estimates without diligent verification. If you want a very casual ballpark for budgeting, this quick process may suffice in the early planning stages.
Key Times to Get Pre-Approved
Actively House Hunting
Once you start actively viewing homes and making offers, a pre-approval proves you have financing lined up, giving you a competitive edge. At this stage, verified approval amounts also become essential.
Within 90-120 Days of Buying
Most pre-approvals are only issued for 90-120-day windows. So when you realistically expect to purchase within roughly this timeframe, getting pre-approved matches this validity period.
Found Your Dream Home
If you have located the definite home that you plan to make an offer on, going through full pre-approval smooths and expedites the deal’s closure, avoiding financing issues down the line.
First-Time Home Buyer
As a new buyer unfamiliar with the complex process, getting pre-approved immediately guides accurate budgets and timelines while confirming you qualify.
When to Do Both
In many cases, it is smart to take a phased approach: Get pre-qualified first during initial research and then pre-approved closer to your actual home buying date. This combines the unique advantages of each at appropriate times.
The most prudent home buyers consult lending experts to determine when pre-qualification or pre-approval is best for their optimized buying game plan.
Key takeaways
Here is the summary of how mortgage pre-approval and pre-qualification are different in Canada
| Pre-Qualification | Pre-Approval |
|---|---|
| Basic questions on income/assets/debts | Full mortgage application |
| Minutes to days | 7-14 days on average |
| Soft credit check, no impact | Hard credit check, may temporarily impact the score |
| Rough estimate approval range | Guaranteed maximum borrowing amount |
| Estimates only | Lock in for 60-120 days |
| Typically free | Typically free |
Ready on your Home-buying journey?
The home-buying journey has many milestones. Getting pre-qualified and pre-approved early on sets you up for success. The most valuable step is connecting with a licensed mortgage professional as you navigate the nuances between these terms and mortgage lending.
Don’t leave your home-buying journey to chance. Consult the brokers at Best Mortgage Online now to get started and receive personalized advice.
FAQs on Mortgage Pre-approval and Pre-qualification
How do I know if I should get pre-qualified or pre-approved for a mortgage in Canada?
Assess where you're at in the buying journey. Get pre-qualified early on to budget. Get pre-approved once actively looking within 90-120 days of buying.
What documents do I need for mortgage pre-approval vs pre-qualification?
Minimal information is needed for a pre-qualification. However, pre-approval requires extensive documentation, such as tax returns, pay stubs, and statements verifying assets/liabilities.
How long are pre-approvals and pre-qualifications valid in Canada?
Pre-qualification estimates have no set validity, but mortgage pre-approval firm commitments are typically issued for 90-120 days.
Can I get pre-approved by multiple lenders in Canada?
Yes, you can shop around, but each pre-approval requires a hard credit check that can impact your score in the short term.
What credit score do I need to get pre-qualified or pre-approved for a mortgage in Canada?
Each lender has different credit score requirements, but most require a minimum score over 680 for either a pre-qualification or pre-approval.
Why are pre-approvals better than pre-qualifications when buying a home in Canada?
Pre-approvals provide confirmed figures on the maximum mortgage you are guaranteed to qualify for, while pre-qualifications give very high-level ballpark figures without verification.
Should I get pre-qualified or pre-approved before making an offer in Canada?
Get pre-approved before making an offer, as it proves to sellers you can secure financing, giving a key competitive edge. Pre-qualification alone is very limited.
When do lenders do credit checks for pre-approval vs pre-qualification in Canada?
Pre-qualifications only involve soft credit checks that don't impact your score. However, pre-approvals do hard checks that could cause a small temporary score drop.
Can being pre-approved help me buy points on my mortgage rate in Canada?
Yes, pre-approved strengthens your position to buy points to lower your rate, as you'll know the exact loan amount you need to buy points against.
