Difference between Loan Pre-qualified Versus Pre-approved

Many home buyers are unfamiliar with the terms loan pre-qualification and pre-approval.  Being pre-approved puts the buyer in a stronger position versus a buyer who only has been pre-qualified for a home mortgage loan.   This is especially true if buyer is in a multi-offer environment where all other terms from other buyers are similar.  Being pre-approved usually will allow for a quicker closing and save the seller out-of-pocket expenses. A pre-approval is the closest thing to a sure thing when applying for a loan.  Now, what is meant by being pre-qualified versus pre-approved?  First, pre-qualified for a home loan means the home buyer has provided the lender with approximate income, current debts and details about credit history subject to verification.  The lender will use this information to determine how much money the buyer may be eligible to borrow and provide a conditional qualification letter to the buyer.  At this time, there is no guarantee you will be approved for the loan amount.  Second, Pre-approval means the buyer has completed a loan application and in some cases you may have paid an application fee.  Extensive examination and verification of your financial condition as occurred.  Then the lender will commit in writing to fund your loan with fewer conditions.  This will always be subject to the appraisal of the property.   As a buyer you are not obligated to take the loan, but the lender must stand behind the loan unless there have been changes in your situation during the interim.  Finally, there are situations that cause the lender to withdraw your loan approval after issuance of pre-approval letter, such as: apply for new loans, getting new credit cards, change in employment, and making major purchases, etc.  Remember, the lender will recheck your credit prior to closing and funding.