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Pre Qualified versus Pre Approved, do you know the difference??

This is not so much a rant as I hope it is an education for the uninformed or misled buyer. There are a couple of terms I am sure most of you have heard before and they are Pre Qualified and Pre Approved, believe me there is a difference.

A Pre Qualification will involve really nothing more than a phone call into your mortgage broker, mortgage specialist or directly to your bank. They will ask you a couple of questions, for example, “How much money do you make per year?" Another question they may ask will be, “How much debt do you have?" and one more might be, “How much do you want to spend?"  Now if the buyer is being truthful on all fronts the answer that they get from the lender will be either a yes you are pre qualified to purchase up to X amount, or no sorry not at this time.  At this point as a buyer, you are still NOT pre approved. The lender has inputted your information that you gave over the phone into a program they have that measures your income against your Total Debt Service Ratio and it spits out a number that you can purchase up to.  They have not looked at your credit bureau to see if you are even able to purchase a home based on your credit rating. If you do write an offer with your Realtor® and you are declined for financing because you were not overly truthful with the lender, you have just wasted a whole bunch of time. 

A Pre Approval is very different, the lender or broker will ask to meet with you in person and ask you to bring in a few things to prove your income and your debt. They will ask you for your most recent T4 slip, at least 2 recent pay stubs, a letter of employment from your employer, possibly some credit card statements, and even some utility bills. They will also ask you to sign a release allowing them to pull your credit history off of sites such as Equifax and Transunion. Every time you miss a payment on your credit card or your car loan or your mortgage it is recorded on your file, this will affect your credit rating which will in turn affect how much, or, if the lender is going to give you a mortgage.  If you have not had the opportunity to sit down with your broker or lender and you have not handed over this information, I am sorry to be the one to tell you but you are NOT Pre Approved!

Be efficient and please be mindful of not only your time but of those around you that will be helping you through the home buying process. Get a Pre Approval letter from your lender BEFORE you go out to look at homes with your Realtor®. It will tell you how much you can spend based on a certain down payment and at what rate of interest you will be charged. The letter will NOT say that you still need to be approved for these things. The only thing it may say about approval is through CMHC, but that is a whole other blog.

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