Mortgage Blog

What Is A Mortgage Pre-approval?

May 24, 2019 | Posted by: Jatinderbir Singh Bajwa

There are a lot of different terms involved when talking about mortgages that can leave home buyers confused. The first terms you will likely become acquainted with are pre-qualification and pre-approval. While the terms are often used interchangeably, they each mean something different.


During pre-qualification, a mortgage lender will assess income, debt, and finances to estimate your loan amount. At this point, your credit report or verification of your finances is not done. It is a useful starting point to determine what you can afford but does not carry any weight when making offers.


A pre-approval involves filling out an application and providing your social insurance number so that the lender can make a hard credit inquiry. This check is recorded on your credit report and can impact your credit score. This process is done so that your lender can verify that you can repay your loan. This information is used to calculate your debt-to-income ratio, which is an essential factor for determining your interest rate and loan type.

Why get pre-approved?

Pre-approval letters for mortgages are usually valid for two to three months. It expires because your credit profile could change within that amount of time, affecting the amount you would be approved for. Going through the pre-approval process can help you understand your credit score better, identify any financial issues you have, and address these issues to improve your interest rate or loan amount. You should get a pre-approval done at least six months to a year before you plan on house hunting. Doing so will also give you more time to save for a down payment and closing costs. The letter can be used prove to sellers that you already have the backing to go through with an offer. Pre-approval makes your offer look more attractive to sellers.

Shopping time

Once you get that precious piece of paper that indicates how much you have been pre-approved for, you can finally start shopping for a home. That being said, a pre-approval document is not the same as a contract. Lenders will not give you the loan until you have picked a specific property. That is because lenders want to be able to back out in case your financial situation changes between the time you get pre-approved and when you find a home. Keeping your finances in order in the meantime is essential. Restrain from opening any new credit accounts during this time for furniture or anything else. Be sure any debt you currently have is being paid down so that there is not a substantial increase to the balance.

The bottom line

You should go through the pre-approval process with several lenders so that you can compare interest rates and get the best deal. Ensure you do this within a 45-day period so that all of the credit check being done by these vendors count as one hard inquiry, reducing the impact on your credit score. Even if you are just thinking about home ownership, the pre-qualification process can help you figure out what shape your finances are in. Keep in mind that a pre-approval letter is conditional on your employment and financial situation remaining relatively unchanged. Call Avon Financials for more information about the mortgage process and to find out what you qualify for. Our brokers have years of experience and access to a wide range of mortgage products so that you get matched with the one that is right for you.

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