Pre-qualified vs. Pre-approved
What’s the difference?
When you are pre-qualified for a loan the mortgage lender has basically looked over your numbers and suggested the amount you can afford. Although this may appear to be a guess as your numbers have not been verified, the lender does this every day so it is better than a guess. A mortgage lender may provide you with a letter of pre-qualification to be used when searching for a home. Generally there is no charge for getting pre qualified.
When you are pre-approved, the mortgage lender has basically verified all of the information you provided for the application. This includes how much you earn, how much you owe and your credit rating or FICO score. You will most likely be charged for this service. A letter of pre approval is furnished to you by the mortgage lender and this puts you in a much stronger position when purchasing a new home as the seller knows you are pre approved and are thus qualified to buy a new house.
The reason the term “pre” is used is because it happens prior to actually finding a home. Many years ago lenders would only allow buyers to apply for a loan once they had actually found a new home.