As a first-time home buyer, questions are bound to arise regarding your house purchase. Understanding the difference between pre-qualification, a rate hold, and pre-approval for a mortgage are all vital to making the right decisions when buying your home.
What is a pre-qualified mortgage?
When you are beginning the process of buying a home, you must first get pre-qualified. To get pre-qualified you must provide your mortgage broker with all information regarding your:
- Assets
- Debt
- Income
The process of pre-qualifying for a mortgage is rather quick, and can generally be completed online, or by a mortgage broker over the phone. The best part is that there are usually no fees associated with the pre-qualification process. Please keep in mind that your credit rating and affordability are not taken into consideration during this process. However, it can provide you with an estimate of your expected mortgage approval. It will also help you to understand rates and other options that may be available to you.
What is a pre-approval mortgage?
A pre-approval mortgage takes a deeper look into your finances. It will let you know the value of the home that is affordable to you. To determine your affordability, your mortgage broker will look at your:
- Income
- Savings
- Purchase prices and associated mortgage payments
You will also need to complete a mortgage application, which will be assessed by your broker. At this time your broker may also look at your credit score and rating to ensure your will meet all requirements. If you meet all the requirements a pre-approval mortgage can also provide you with a guaranteed mortgage rate to prevent this rate increasing, without any additional cost. Next, you will receive a conditional commitment that includes your specific maximum loan amount, which will enable you to shop for a home that is within this price range.
A pre-approval mortgage can help you to be competitive when negotiating the purchase price of your new potential home, since sellers will be aware that you’re already approved.
What is a rate hold?
Now that you understand the difference between a pre-qualified mortgage and a pre-approval mortgage, this only leaves mortgage rate holds. If you are applying for a mortgage with a fixed rate, you can qualify for a rate hold. There are 3 possibilities when it comes to the duration of the rate hold:
- 60 days
- 90 days; or
- 120 days
One upside to rate holds is that if you hire an mortgage broker, your broker will monitor rate changes for 24 hours, before locking in your mortgage rate with a lender or multiple lenders. This will maximize your rate hold duration. You must complete a pre-approval for a mortgage to sign up for a mortgage rate hold automatically.
Do you want to start the pre-approval process or get a free evaluation? If so, call AKAL Mortgages today at (416) 621-1300. When we say YES! We stand behind our promise.