GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

How often this word is used
 
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50% - Moderately

Pre-approval


Synonyms:mortgage pre-approval, pre-approved, pre-approved mortgage
Filed Under: financial-banking, mortgages
Tags: banking, mortgage
 

Definition of pre-approval

pre-approval
1. A process used by mortgage lenders to determine the loan amount they would give to a potential buyer based on an extensive review of the buyer's credit history. Lenders issue pre-approval letters to strengthen a buyer's position when bidding on a home, because it instills confidence in a seller that the buyer is able to obtain the money needed to purchase the property.

Related Terms and Acronyms:

  • firm commitment   A lender's promise to lend money to a specific borrower on specified terms at a certain time.
  • mortgage (mtg)   A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
  • mortgage application   A document in which a prospective borrower details his or her financial situation to qualify for a loan.
  • pre-approval letter   A document from a lender or broker, estimating how much a potential home-buyer could borrow, based on current interest rates and a preliminary look at credit history.
  • pre-qualification   An informal process in which a lender will offer an opinion on how much money you may be able to borrow. This opinion is based entirely on the financial information you provide and is neither binding nor necessarily accurate because lenders have not yet verified your financial information.
  • private lender   A lender not associated with a traditional lender.
  • qualifying ratios   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   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.
  • rate lock-in   A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
  • total debt service (TDS)   The ratio of a borrower's total monthly debt payments to his or her monthly gross income. Lenders use this ratio to determine how much of a loan a borrower is qualified for.

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