It’s very important for consumers in Ontario to get pre-approved for loans before they actually begin looking into purchasing either a car or a home. While auto loan purchases can sometimes be done completely on the dealership and don’t always require a loan pre-approval, home loans require pre-approvals and pre-qualifications to make sure that the home buyer doesn’t overextend themselves and focuses their efforts on homes that they can afford.

A loan pre-approval operates by giving the bank a general idea of the consumer’s finances. The bank then inspects the consumer’s credit score and determines the amount of risk that the consumer represents. The bank then decides how much credit they can offer the consumer. Many real estate agents request that a consumer get a pre-approval from a bank before showing the consumer homes. This is because a pre-approval is necessary to show the real estate agent what they can afford to look at.

Loan pre-approvals are usually not very difficult to get and they usually take only a few minutes to go through. Consumers can often get pre-approvals simply by contacting the bank and giving them a rough idea of their financial history. Many pre-approvals can be done entirely online with the submission of a short form like with auto loans online. Consumers can also seek pre-approvals through multiple home lenders to make sure that they have accurate pre-approvals. A pre-approval in no way obligates a consumer to continue their mortgage process through the lending institution that they get it through.

Pre-qualifications, however, are usually far more useful than a pre-approval. During a pre-qualification, the mortgage lender will look through the borrower’s finances in further detail. A pre-qualification usually does not differ much from an actual mortgage approval process, and this means that a home buyer will not be surprised by any issues later on. Pre-approvals are not as thorough as pre-qualifications, so a home buyer that relies only on their pre-approval may later find out that they cannot qualify for as much as they thought. Even pre-qualifications may need to be adjusted later on in the mortgage process.

Consumers should always consult multiple mortgage lenders at every step of the process to make sure that they are getting the best rates and the best terms. Different lenders may also have different qualifications as far as financial history and credit scores are concerned, and it may be important to have a backup plan in the event that a specific mortgage falls through.