When you are applying for a mortgage or loan you often hear the terms pre-qualified or pre-approved. What they mean can vary depending on the lender and type of loan you are after, but generally speaking, pre-qualification is a basic review of your financial situation to see if you can qualify for a loan or not. Pre-approval is a bit more involved and is typically a better indication you will get approved. 

However, some lenders may use the terms interchangeably, so it’s always best to understand what both terms mean so you can be on the same page with your lenders. Both terms mean a lender has done a preliminary check on your financial situation and credit history to see if you can qualify for one of their loans or credit products. Being pre-qualified may still get you a loan in the end, but it is not always accurate or concrete.

Pre-Qualification

If you are pre-qualified for a loan or other credit product, the creditor has done a mild review of your financial situation and credit history to determine if you are eligible for one of their products. Requirements vary, but typically you need to provide a basic financial situation profile, such as income and any debt you carry. Lenders may also do a soft-credit check, which does not affect your credit score.

You do not need to do a full review until you are pre-qualified. With a full review process, your lender will start looking over official documents and do a hard-credit check.

Being pre-qualified does not guarantee approval, nor the amount offered initially, but it can help you make changes if you are not approved so that when you submit a full loan application, you have a better chance of approval.

Pre-Approval

Pre-Approval relies on a proper credit check and you submitting detailed financial information, such as income, debt, assets, etc. This is a better indicator that you will be approved for a loan or other credit product. Again, it does not guarantee you will be approved, or actually receive the amount listed in the pre-approval, but it is more firm compared to pre-qualification.

What’s the Difference Between Them?

Both are meant to give you a rough idea if you qualify for the loan or credit product you are looking at. They cannot guarantee you will be approved. The difference comes down to pre-qualification applications not requiring as much depth, which results in an instant, but less accurate result. Pre-approval gives you a more accurate answer but also does not guarantee the amount. It is better to seek pre-approval when looking for a mortgage or automobile loan, as opposed to pre-qualification which is better suited for credit cards and similar products.

Conclusion

Whether you want to see if you pre-qualify, or are ready to start a pre-approval process, we can help. If you need help getting mortgage pre-approval in Ottawa, The Mills Team is here every step of the way.