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Pre-qualification vs. Pre-approval
Pre-Qualification
“Pre-qualification” does not necessarily mean you are guaranteed to receive a loan. The lender will not do any background checks. Generally, you provide a picture of your financial situation over the phone. However, if your account is not so accurate, the bank may not give final approval for your mortgage. Pre-qualification is a free service, and you are under no obligation to get the mortgage from that lender if you find a better deal.
Pre-Approval
“Pre-approval” is no kidding around. The bank will check your credit history, employment information, your investments and your assets and liabilities – everything they check when you apply for a mortgage. Everything except for the property you're going to buy. Once you find the property you want to buy, you will then need an appraisal and a title search. Because some banks charge for pre-approval, make sure you're really going to buy a house in the relatively near future.
It is highly recommended that you apply for “pre-approval” as opposed to a “pre-qualification." This is especially true for those looking into high-priced homes. Many times the listing agent will not allow the home to be shown unless the potential buyer has been "pre-approved".
With "pre-approval", the risk of being let down is far less. No one likes to get their hopes on their dream home and then not be able to qualify for the loan. With "pre-approval" you will know in advace which homes to view and which homes to rule out.