What is the difference between pre-qualifying and pre-approval?

A pre-qualification is normally issued by a loan officer, who, after an interview with the potential borrower, determines the dollar value of the loan for approval. However, loan officers do not make the final approval, so a pre-qualification is not a commitment to lend. After the loan officer determines that the borrower pre-qualifies, the officer then issues a pre-qualification letter. This pre-qualification letter is used when making an offer on a property. The pre-qualification letter indicates to the seller that the borrower is qualified to purchase the house.

Pre-approval is a step above pre-qualification. Pre-approval involves verifying credit, down payment, employment history, and other vital information. The loan application is submitted to an underwriter and a decision is made regarding the loan application. If the loan is pre-approved, the borrower is then issued a pre-approval certificate. Getting a loan pre-approved allows the borrower to close quickly when they find a home. A pre-approval can also help the borrower negotiate a better price with the seller, since being pre-approved is similar to having cash in the bank to pay for the house.