GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Pre-qualification


Synonyms:loan pre-qualification, mortgage pre-qualification, pre-qualifying
Filed Under: financial-banking, mortgages
Tags: banking, mortgage
 

Definition of pre-qualification

pre-qualification
1. 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.

Related Terms and Acronyms:

  • conditional commitment   A promise by a lender to make a loan if the borrower meets certain requirements.
  • credit rating (CR)   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)   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   A lender's promise to lend money to a specific borrower on specified terms at a certain time.
  • loan application   A document in which a prospective borrower details his or her financial situation to qualify for a loan.
  • mortgage application   A document in which a prospective borrower details his or her financial situation to qualify for a loan.
  • pre-approval   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.
  • qualifying rate   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   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.

More Related Terms and Acronyms

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