Pre-Approval vs. Rate Hold
Many clients get confused about what a pre-approval is and what a rate hold is. Typically a pre-approval is a full evaluation of your entire situation and a bit of a garuntee that you can afford the home you are attempting to purchase. In contrast a rate hold is a promise from a lender to give you a specified interest rate offer should you purchase in the next 120 or 90 days (depending on the lender).
A pre-approval is basically an underwriting of all your documents so that you can have an exact price range of affordability for a home.
To get some numbers for you so that you have a price range of where you can shop I will need:
- income (from line 150 of your Notice of Assessment)
- amount of down payment
- any liabilities that you owe (credit cards, student loans or car payments)
With just this information we can come up with a price range of where you would be approved for a mortgage across the entire mortgage market (or at least the 57 different lenders we have access to). After that if you would like to move forward with a full pre-approval then we would collect documents and do a credit check. We do not need to do these steps right away when we are just talking numbers to get a generic range or idea but these would be the next steps before you are out shopping for a home. Should you want to place an offer on a home it is very important that your file has been fully reviewed and underwritten to avoid any surprises.
When you are ready to put in offers then we would take the preapproval information and the supporting documents that are needed and provide them to the lenders in order to have a rate-hold to protect you from jumps in the marked. A rate can be held for 120 days before it expires. This means that your rate hold is only good for 120 days until the closing date of your home purchase. A rate hold is a great thing to have in a rising rate environment as it can save you some money should interest rates increase while you are shopping for a home.