This is a very good question. I have always recommended to my clients that we go a step further than just a simple Pre-Qualification and that they become Pre-Approved. Sellers today, including the "Seller Banks" that are controlling all the foreclosures and short-sales, are now requiring a strong LSR before they will even look at your offer.
What's the difference between pre-qualification and pre-approval?
Pre-Qualification is the starting point in your search for mortgage financing. A quick snapshot is taken which includes income, existing debt, savings, length of employment, etc. All of these factors will then be analyzed to determine your loan eligibility.
Pre-Approval is written documentation that shows you have the support of a lender who is willing to finance you. It means an Underwriter has reviewed your loan application Based on your income, debt ratio and savings, the Underwriter provides the dollar amount you are eligible to borrow, based upon you meeting certain conditions, such as your property will appraise for the selling price, clear title, homeowners insurance, etc. Now you can shop around for houses that fit into that loan amount category with confidence.
Here is the nice thing about being Pre-Approved: It gives you the advantage to shop as a cash buyer! With a Pre-Approval in hand, you now have the power to negotiate. The seller will take your offer much more seriously knowing you are already approved by a lender. Pre-Approval will also shorten the time it takes to close, making even a lower bid attractive to sellers who are seeking to move quickly.
Hope that helps you.
All the best,
Roswell Moore, CMPS
Certified Mortgage Planner