Mortgage Prequalification vs Pre-Approval in Quebec: What Each One Really Gets You

The two terms sound alike and are often used interchangeably. They don't mean the same thing. A prequalification gives you a ballpark in minutes; a pre-approval commits the lender to an amount and a rate, under conditions. With rates just moving up again, the difference matters.

Prequalification: a ballpark figure

According to National Bank, prequalification gives an approximate estimate of how much you can borrow based on your income. It relies mostly on what you declare: income, debts, planned down payment. It is useful early on, to know which price range to search.

It carries little weight with a seller: nothing has been verified and no rate is held.

Pre-approval: a conditional commitment

Pre-approval goes further. National Bank says it considers several criteria, including your credit score, and confirms the amount the bank agrees to lend, under certain conditions. The Financial Consumer Agency of Canada notes that lenders usually check your credit during the process.

Documents usually requested, according to the FCAC:

• proof of identity and employment, such as a recent pay stub;
• for self-employed borrowers, Canada Revenue Agency notices of assessment for the last two years;
• proof of funds for the down payment and closing costs, with recent bank and investment statements;
• a list of other assets and debts: credit cards, car loan, lines of credit, student loans.

The rate hold: 60 to 130 days

The key benefit of pre-approval is the rate guarantee. According to the FCAC, it lasts 60 to 130 days depending on the lender; National Bank states 120 days for its own. After the October 28 policy rate hike, a rate held before the announcement has real value.

Questions the FCAC suggests asking: how long the rate is guaranteed, whether you automatically get a lower rate if rates drop, and whether the pre-approval can be extended.

What neither one guarantees

The FCAC is clear: a pre-approval does not guarantee mortgage approval. The amount is a maximum, not a firm commitment. Final approval also depends on the property: its value, the lender's appraisal and whether it meets the lender's standards. A job change or new debt between pre-approval and purchase can also undo it.

That is why a promise to purchase keeps a financing condition even with a pre-approval in hand. Our article on a lender appraisal below the purchase price shows what happens when the property, not the buyer, blocks the financing.

Which one to get, and when

• Before you start looking: a prequalification is enough to target a price range.
• Before serious visits: a pre-approval, to know your real ceiling and hold a rate.
• When comparing: the FCAC recommends comparing several lenders, since rates and terms can differ. A mortgage broker can do that comparison; ask which lenders they work with.