Pre-qualification

Definition

  • An informal process where a lender gives an estimate of how much a person can borrow to purchase a property. This estimate is based entirely on financial information provided by the potential borrower. Pre-qualification is not the same as pre-approval because it is not legally binding or even accurate since the person's financial information is not verified.

Synonyms
pre-qualifying, loan pre-qualification, mortgage pre-qualification

Alternate Spellings
Prequalification, Pre-qualified, Prequalified

Related Terms and Acronyms

  • Approval Definition,
    • An assessment made by a lender of a borrower's ability to pay for a home and a confirmation of the amount the borrower may obtain.
  • Conditional Commitment Definition,
    • A promise by a lender to make a loan if the borrower meets certain requirements.
  • Credit Rating (CR) Acronym, Very Important,
    • A judgement of a person's ability to repay debts. The rating is often based on a person's current and projected income and past debt payment history. Also called a credit score.
    A metric to measure the credit worthiness of a debtor.
  • Credit Report (CR) Acronym, Very Important,
    • A report on a loan applicant's willingness and ability to make payments in a timely manner in the past. This report is provided to the bank by an outside agency.
    A report that outlines the credit worthiness of an individual or entity.
  • Firm Commitment Definition,
    • A lender's promise to lend money to a specific borrower on specified terms at a certain time.
  • Loan Definition,
    • Letting another party use something of value temporarily.
  • Loan Application Definition,
    • A document in which a prospective borrower details his or her financial situation to qualify for a loan.
  • Mortgage Application Definition, Very Important,
    • A document in which a prospective borrower details his or her financial situation to qualify for a loan.
  • Pre-approval Definition,
    • A process that mortgage lenders use to determine how much money they would lend you based on a thorough review of your financial situation. Lenders issue a pre-approval letter which strengthens your position when bidding on a home, as it shows sellers that you will be able to raise funds needed to purchase.
  • Pre-Approval Expiry Date Definition,
    • The date when a pre-approved mortgage expires, often 90 - 120 days after being pre-approved.
  • Qualifying Rate Definition,
    • The mortgage rate that one must qualify for when applying for a variable rate or a term less than 5 years, so that if rates increase, the borrower can continue to make payments.
  • Qualifying Ratios Definition,
    • As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt. The first qualifying ratio, called the gross debt service or GDS is up to and including a maximum of 32% of the combined gross family income. The second qualifying ratio is the Total debt service or TDS is up to and including 40% of gross income.
  • Rate Hold Definition,
    • The length of time, typically between 60 and 120 days, that a lender will guarantee a loan's interest rate once you are locked in.
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