This is the first step in the buying process. Pre-qualifying for a home loan is an assessment to determine whether your income and debt-ratio may fit a loan program and provides an estimated amount you may be able borrow. A pre-qualification letter is provided and can be given to your REALTOR® as a sign of confidence that you are a serious home buyer. Usually when pre-qualifying for a home loan, your lender will ask basic questions about your income, debt, assets and sometimes a credit check. There is usually no cost for pre-qualifying for a home loan because it is not comprehensive, and therefore not a true lender commitment.
Mortgage pre-approval is a financial evaluation that involves applying for a mortgage, underwriting, and a commitment by the lender for a specific loan amount. It is a conditional commitment in writing for a specific loan amount and loan program. Provided all the specified conditions are met, the lender is obligated to go through with the loan. Conditional approval is subject to satisfactory appraisal and title review and no change in financial condition.
Read more about the differences between pre-qualifying for a home loan and getting a pre-approval.