Frequently Asked Questions

1) What is the difference between pre-qualification and pre-approval? 

Prequalification is the first step and involves a lender asking a borrower questions about their income, debt, monies available for a downpayment etc.  Based on the verbal information that is given to the loan officer, he/she will calculate what the borrower will qualify for in terms of a mortgage. 

 Pre-approval is the second step and involves the borrower filling out an application and providing supporting documentation (such as bank statements and pay stubs) to verify their income and assets.  The loan is then “processed” , a credit report is obtained, and the data about the loan is put into a computer program which approves or denies the loan.  If the computer determines that the loan is eligible, then it goes to a live human being called an underwriter who will review all of the income, assets, debts and credit to determine whether a loan can be made, and under what conditions.

2) Which is better and why?

A pre-approval is always stronger and is therefore better.  A seller wants to know that a potential buyer is financially capable of buying their home and they will only have confidence in the buyer’s abilities if they are pre-approved – hopefully by an underwriter.

3)  Is there a cost to get pre-approved and how long is it good for?

The only cost for a pre-approval is the cost of the credit report ($13.20).  A pre-approval is generally valid for six month- though updated bank statements and paystubs will be needed.

4) Why is the APR (annual percentage rate) listed on the Truth-in-Lending disclosure higher than the interest rate that was quoted?

The APR is a rate is a reflection of the cost of the loan – expressed as an interest rate – when the closing costs and any private mortgage insurance is included in the calculation.  Therefore, the APR is almost always higher than the interest rate.  However, it is the interest rate and not the APR which determines your monthly payment.