What distinguishes pre-approval from pre-qualification?

Pre-approval is distinguished from pre-qualification primarily because it reflects a more thorough evaluation of a borrower's financial situation. When a borrower is pre-approved, the lender assesses verified financial information, which includes income documentation, credit reports, and other relevant data. This process allows the lender to provide a conditional commitment for a specific loan amount based on the verified financial standing of the borrower.

In contrast, pre-qualification is often a quicker and less formal process that usually does not require the borrower to submit documentation or undergo a credit check. As a result, while pre-qualification gives a general idea of how much one might be able to borrow, pre-approval is a more reliable indication of borrowing power, as it involves the lender's actual assessment of the borrower’s financial condition.