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Preapproval vs. Prequal

BUYER'S TIP: Find a lender who will be willing to supply you with more than one preapproval letter so that you can customize your preapproval to your offer price. A lender who tips off the home seller to your "top dollar" based on the total amount you can afford to borrow, if you need to, isn't doing you any favors!

Pre-qualification is based on a simple calculating process performed by a lender or real estate agent to provide an affordability guideline for buyers. Since there is no verification, the lender is not bound to make a loan.

Pre-approval, on the other hand, is based on independent verification of the information. The lender has fully documented the buyers' ability to borrow, checked the credit rating and set a maximum based on income, credit and down payment. Serious home buyers take the effort to get pre-approved because it gives them an edge over other unqualified buyers competing for homes in a seller's market. The knowledge of what they can afford also keeps them from looking at homes that are out of reach.

The lender will provide a letter of commitment based on the verified information from your mortgage application. The letter of commitment helps home buyers meet a common contingency in the offer to purchase and provides peace of mind to nervous home sellers about the financial ability of the buyers.