A pre-qualification is normally issued by a loan officer,
who, after interviewing you, determines the dollar value
of a loan you can be approved for. 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 you pre-qualify, he/she then issues
you a pre-qualification letter. This pre-qualification
letter is used when you are making an offer on a property.
The pre-qualification letter indicates to the seller
that you are qualified to purchase the house you are
making an offer on.
Pre-approval is a step above pre-qualification. Pre-approval
involves verifying your credit, down payment, employment
history, etc. Your loan application is submitted to
an underwriter and a decision is made regarding your
loan application. If your loan is pre-approved, you
are then issued a pre-approval certificate. Getting
your loan pre-approved allows you to close very quickly
when you do find a house. A pre-approval can help you
negotiate a better price with the seller, since being
pre-approved is very close to having cash in the bank
to pay for the house!