A pre-approval letter is a document from a lender or broker that estimates how much a potential homebuyer could borrow based upon current interest rates and a preliminary look at credit history. The letter is a not a binding agreement with a lender. Having a pre-approval letter can make it easier to shop for a home and negotiate with sellers. It is better to have a pre-approval letter than an informal pre-qualification letter.
A pre-qualification letter, on the other hand, is a non-binding evaluation of a prospective borrower’s finances to determine how much he or she can borrow and on what terms. A pre-qualification letter is a less formal version of a pre-approval letter; it is much better to have a pre-approval letter.
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