What is a pre-approved mortgage?
A pre-approved mortgage confirms in writing by a lender the maximum amount of money that they are willing to lend you for the purposes of a mortgage. This is especially useful during a time when interest rates are fluctuating. The advantage to you is you know exactly what your borrowing limit is before you start house hunting. With a pre-approval, a lender will guarantee you a specific mortgage amount for a specific period of time. In the event the mortgage interest rate drops before the lender advances you the funds for a mortgage, our licensed mortgage professional will ensure you are given the lower mortgage rate. If the rates rise, you are protected against the higher rate and given the rate at the time you had the mortgage pre-approved.
A pre-approval should not be confused with a pre-qualification. A pre-approval is when a lender has more likely reviewed your supporting documents and confirmed that as long as there are no adverse changes to your file and they approve of the property, they will extend you a mortgage at x rate and y amount. A pre-qualification, on the other hand, is when a lender has NOT reviewed your documents but simply gone over your numbers and credit score, and is letting you know the rate and the amount they will extend to you after all of your documents are verified during the subsequent application.
It should be noted that lenders often use the terms pre-approval and pre-qualification interchangeably and borrowers can be easily misled into believing the subsequent mortgage approval is guaranteed. It is always best to check with a licensed mortgage professional on just how guaranteed the final approval really is. About the only thing guaranteed on a pre-approval is the interest rate-hold terms offered by the lender.
Sometimes a realtor will demand their clients have received either a pre-approval or pre-qualification prior to working with them.