Loan Pre Qualification
As with much of the real estate industry, the mortgage industry uses terms that sound great, but actually aren't what they sound like. The loan pre-qualification is such a phrase.
If you've been shopping for a home, you'll already know all the interesting terms that people use to describe their property. A cozy home usually means the home is essentially a closet with a bathroom. A rustic home oftentimes means that the place is so decrepit that people are betting on whether or not the next gust of wind will bring it down.
In the mortgage world, loan pre-qualification is an activity and a phrase that truth be told sounds very interesting. The basic idea is this: a buyer goes to a lender prior to shopping for a home and attempts to determine how much they can borrow. The lender does a cursory interview and maybe looks at a paycheck stub. The lender representative then declares that the buyer is prequalified for a certain X amount. With the loan pre-qualification letter in hand, the buyer heads out to find that unique property that is just right.
While this sounds terrific, there is a serious problem. A loan pre-qualification determination by a lender is not worth the paper it is written on because the lender hasn't really made any kind of determination. The bank hasn't actually run though any of the criteria it normally uses to write a loan, so there is no actual value to it. The loan pre-qualification letter is not binding on the bank in any way.
Loan pre-qualification letters are a whole lot of useless, but pre-approval letters are a whole other matter. A loan pre-approval works the same way as a loan pre-qualification letter with the difference that you actually go through the entire loan application process. The bank then makes a final determination and pre-approves you for a certain loan amount.