Mortgage Pre-Approval and Pre-Qualification Letters

Before you even begin previewing home you should be pre-approved or at least  pre-qualified for mortgage amount in the price range within which you are searching. Because when you find your dream house, you need to act quickly. You'll need to craft a solid purchase offer that demonstrates not only your strong desire to purchase the property, but also demonstrates your ability to perform on contract. Unless it’s a cash purchase, the offer should be accompanied by a mortgage approval letter stating that a lending institution has approved you for a specific mortgage amount.

A mortgage approval is the best and strongest statement of buyer qualification. If you can't get an approval, you can use a pre-qualification letter. This states only that you qualify for a certain mortgage amount based on preliminary information suplied usually over the phone. This is not as strong as an approval, but is better than nothing when there are time constraints. (See definitions below)

Definitions:

Preapproval

This is a process where by a borrower fills out an actual mortgage application with the lender providing detailed information on their financial outlook and so on. The application is run through decisioning software and in certain cases, where the approval is more difficult to grant, it may need to be reviewed by an underwriter. If
an approval is granted a commitment letter is provided, which isa binding document and a promise of money from the lender based on all accompanying conditions being satisfied.

The advantage of this process is the weight the decision and the committment letter carries. The disadvantage is that it can sometimes take more time to push this through and so it may not be something available at a moment's notice.

Prequalification

This is a process wereby the borrower can have a conversation with a mortgage consultant who will ask pertinent questions pertaining to the purchase of new property. Based on the mortagage consultant's  experience and knowledge, an opinion is rendered with regard to the client's ability to qualify for a loan. A prequalification certificate or letter is issued.
The advantage of this overview is the speed at which it can be completed and available.  The disadvantage is that it does not have the resonance and substance of an official preapproval backed by a commitment letter.

A desirable property may have several would-be purchasers. That's why it's important to be prepared with a mortgage approval or at least a pre-qualification before you even start looking!