Pre-qualification is usually based on verbal information you provide. Pre-approval requires documentation — pay stubs, tax returns, bank statements — and a credit review, including a submission to an automated underwriting system that returns the result of eligibility on your file. Some lenders even go further and after getting an automated underwriting approval, they submit your loan to human underwriting to be 100% sure that you going to get your loan. Pre-qualification is a conversation, and some banks use this method, which is highly unreliable. Pre-approval is a verified financial position. In competitive markets, a pre-qualification doesn’t carry much weight, unless the letter says that the lender has reviewed your documentation. Sellers want confidence that financing will not fall apart midway through the transaction. So even if the title of your preapproval document says prequalification, if they have submitted it to automated underwriting, it carries the same weight as a preapproval. The biggest mistake buyers make is assuming these two terms are interchangeable. They are not.
Please consult your Mortgage Advisor for guidance specific to your situation before making changes.
