Pre-qualification is normally determined by a loan officer. After interviewing you, the loan officer determines the potential loan amount for which you may be approved. The loan officer does not issue loan approval; therefore, pre-qualification is not a commitment to lend.
After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home.
Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. We run automated underwriting with Fannie Mae or Freddie Mac which will provide a very strong indication of your loan approval. Sometimes if there are factors that need assistance from an underwriter we will do that as well.
When your loan is pre-approved, you receive a pre-approval letter. Getting your loan pre-approved allows you to shop with confidence and helps get your transaction closed very quickly when you do find a home. Pre-approval can also help you negotiate a better price with the seller.