People shopping for a loan often get these two terms confused, sometimes to their disadvantage. Every government and bank owned property we deal with will require a pre-approval letter from a lender when we submit the purchase contract. This is one of the most important aspects of buying foreclosed properties. If you have not yet discussed your financial situation with a lender, then you are wasting valuable time looking for the right deal on a  foreclosure.

It is also a good idea to get pre-approved if you are shopping for normal real estate properties. Normally, sellers will opt to deal with "pre-approved" buyers instead of those that have not yet started the lending process. Two main reasons: much higher chances of closing the transaction and shorter time periods(maybe as short as ten days).

Pre-Qualification

Think of this as the "quick and easy" first look at your ability to purchase a home. It is simply a calculation based on what your currently owe each month divided by what you make each month followed by a determination of what you can afford for housing each month.

Do not mistake "pre-qualification", being "pre-qualified" or being told you "pre-qualify" as loan approval. They are not the same. At this stage, you have not yet given any documentation to the lender or probably even met face to face. And as important, they have not yet pulled your credit.

Pre-Approval

This is not a test of what you can afford. Pre-Approval means you have gone through the "pre-qualifying" process described here and your file has been formally submitted to and accepted by a lender for financing. If you have not submitted income and bank account information then this form of "pre-approval" is conditional, subject to receipt and acceptance of income, tax returns, bank account and other information. It is usually referred to as "approved with conditions".

Unconditional pre-approval means you have met the above criteria and you have provided all documents necessary to clear all conditions relating to your income, assets and credit. The only thing remaining is finding the right home and negotiating a purchase. Having an unconditional approval is a good as shopping for a home with your check in hand. Remember, other documents must be supplied to the "underwriter" before you can get your final "clear to close" like pest inspections, surveys, and clear transferable title work.