Pre-Approval VS Rate Hold
Pre-Approval VS Rate Hold… what are the differences? What are the benefits? Not even one Mortgage or Pre-Approval Process is the exact same as someone else’s. The Mortgage and Pre-Approval process are complex mazes of tiny puzzle pieces that must fit together seamlessly. Note that the puzzle pieces are constantly changing in this industry. Many lenders will pre-qualify and give Rate Holds to their customers, but that only gives you as a borrower, a general idea of the amount of the mortgage you could afford. However, when you are pre-approved, you’ll have a clear picture of the home you can afford and what you might pay each month.
As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Pre-Approvals VS Rate Holds.
The “Pre-Approval Approach” is simply a more detailed process. You as a client will be sending in all requested documents for review (besides subject property.) The lender of your choice will have to approve your application based on information such as employment, current debts, down payment, and your previous/current credit history.
Something to keep in mind is that even if all four “pillars” are approved, it is NOT a guarantee that the whole application will be approved. The lender you chose will still need to meet all insurance guidelines if there is less than a 20% down payment.
Since the Pre-Approval process (compared to the Rate Hold process) is quite thorough, there are many benefits to this product. The biggest one is that you will have a general idea of what you can afford even before you shop for a home. Another commonly appreciated “pro” of a Pre-Approval process is that you can ask your Mortgage Broker any questions about current mortgage products on the market and get the best plan for you, before looking at any properties.
A few things to also consider while thinking of starting your Pre-Approval Process are:
- Pulling your credit in the Pre-Approval Process will cause a temporary decline in your credit score
- There is no 100% Guarantee on being approved after a Pre-Approval if circumstances for the borrower or subject property change
A Rate Hold is simply “locking in” a specific mortgage rate for a certain number of days. Most commonly, a general Rate Hold is for 120 days, but 30, 45, 60, and 90-day rate holds are also widely offered by various lenders. A “Rate Hold” only applies to fixed rates since variable rates are constantly fluctuating with the global economy. While the lender you are working with will guarantee a fixed rate for the duration of your “Rate Hold” period, this should NOT be seen as a guarantee that you’ll be pre-approved for the mortgage.
Locking in a fixed rate will come most in handy when mortgage rates are rising, you won’t have to worry since you have your “locked-in” rate. However, if rates decline, you will also have access to the lower mortgage rates that are currently on the market.
Now that we’ve discussed the “pros” here are a few things to consider:
- Not all lenders offer pre-approvals and rate holds
- Rate holds are often shorter for renewals and refinances
- Some promotional rates involve a “no float-down” policy, meaning the lender has locked-in rates that cannot drop, regardless of whether rates are falling in general
Most Rate Hold products are generally automated, which means nobody is even looking at your application. That means any documents you have sent in, won’t be reviewed at this point.
The system will analyze a few key pieces of data from the application like:
- Credit Score
- Loan to Value Ratio
- Name
- Birthdate
The best time for a “Rate Hold” would be for a borrower that is looking to make a Purchase or start a Refinance in the very near future, since the max Rate Hold is usually 120 days. The best Pre-Approvals and Rate Holds are the ones that come from your Mortgage Broker because they can analyze your needs and start underwriting right away. With their expert advice, together you can create a perfectly “tailored-to-you” plan.
