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What are the differences between mortgage prequalification and mortgage preapproval?

What are the differences between mortgage prequalification and mortgage preapproval?

What are the differences between mortgage prequalification and mortgage preapproval? - Key Information

Purchasing a property often requires obtaining a mortgage loan. Though sometimes confused, mortgage prequalification and mortgage preapproval are distinct steps in this process. Our real estate brokers explain the essential differences between these crucial steps.

Mortgage Prequalification (or Mortgage Pre-eligibility)

A home-buying process typically begins with a mortgage prequalification. This is an informal step where you provide basic financial information (income, debts, assets, etc.) to the lender, often without verification. Lenders include banks, credit unions, insurance companies, and loan companies. In most cases, banks fulfill this role. Among them are National Bank, Bank of Montreal, Desjardins, RBC Royal Bank, and others. These institutions directly provide funds and offer interest rates. 

Mortgage prequalification determines the maximum loan amount you may be granted for purchasing a property. It’s an approximate estimate, not a formal commitment from the lender. This step generally doesn’t require detailed documents and can be done online or by phone. Prequalification usually doesn’t involve a thorough credit check, so it doesn’t affect your credit score.

Mortgage Preapproval (or Mortgage Preauthorization)

Mortgage preapproval is a more advanced and formal step that confirms your eligibility for a mortgage when you are ready to buy a property. You must complete a loan application and provide financial documents (income statements, bank statements, credit score, etc.) to the lender. The application is then evaluated by the lender, who will specify the maximum loan amount under certain conditions. This is a formal commitment from the lender. Mortgage preapproval generally involves a credit check, which can affect your credit score.

For more information on mortgage preapproval, see our article How to get a mortgage preapproval?

Mortgage prequalification gives you an initial idea of your buying budget, helping you start your property search with an approximate estimate of what you can afford. In contrast, mortgage preapproval specifies the maximum amount you can borrow for a mortgage. It’s a crucial step for making a purchase offer on a property. It shows that you are a serious buyer, strengthening your position, along with your real estate broker, in negotiations.

Questions about mortgages? Read our article Mortgages : understanding them better for a real estate purchase.

If you want to obtain a mortgage prequalification or preapproval, we can connect you with experienced mortgage brokers. They will guide you through the process and help you find the best options based on your needs and financial situation.

Read more buyer information

Sources:

Buying a property: what are the costs for buyers? 
https://yanicksarrazin.com/en/immobilier/buyer-information/buying-a-property-what-are-the-costs-for-buyers/

Mortgages: understanding them better for a real estate purchase
https://yanicksarrazin.com/en/immobilier/buyer-information/mortgages-understanding-them-better-for-a-real-estate-purchase-2/

The Promise to Purchase: understanding it better
https://yanicksarrazin.com/en/?p=24351

Our Montreal real estate brokers
https://yanicksarrazin.com/en/montreal-real-estate-broker/

National Bank
https://www.nbc.ca/

BMO
https://www.bmo.com/en-ca/main/personal/

Desjardins
https://www.desjardins.com/qc/en.html

RBC Royal Bank
https://www.rbcroyalbank.com/personal.html

How to get a mortgage pre-approval? https://yanicksarrazin.com/en/immobilier/buyer-information/how-to-get-a-mortgage-pre-approval/

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