The Difference Between Mortgage Pre-qualification and Pre-approval

An important first step in the house buying process is to meet with a mortgage lender and discuss your plans.  Your lender can go over the many different loan programs that may be available to you, and help you determine how much home you can afford.  Your lender can also help you identify any unknown issues in your credit file that may prevent or delay your financing plans, and may be able to give advice on how to fix the issues so you can move forward.  

• A mortgage preapproval is not the same as a prequalification, and just because you've been preapproved for a mortgage doesn't necessarily mean you'll automatically get final approval to purchase.  It can get confusing, so here's a guideline:
• Pre-qualification means the lender has reviewed your basic financial situation, including monthly income and debts.  It's not a very in-depth process, as the lender may or may not have obtained a credit report for you yet.  The lender is simply basing the qualification decision on a conversation or very limited review of your credit background.
• Pre-approval is a more accurate version of pre-qualification.  When you get preapproved for a mortgage loan the lender will have taken time to verify your financial background, request documentation to back it up, and obtain a credit report for you.  This also gives a more accurate idea of how much you can borrow.   A lender typically issues a "conditional' preapproval, depending on an acceptable appraisal of the home being purchased and an in-depth review of a borrower's financial qualifications by their underwriting department.  
• Approval refers to the final mortgage loan approval by the lender after successful verification of income, credit history, and underwriting approval.

In this highly competitive market, a home buyer with a pre-approval letter is in the best position to prove to a home seller they are ready, willing, and able to go through with the home purchase.