You hear both of these terms used when shopping for a home, but they have differnet meanings that can have an impact on the price you pay for your next home.

"Pre-qualify" means that you have given information about your income and outstanding obligations to a loan officer, who will estimate your borrowing power based on the data you supplied.  Sometimes the loan officer will also obtain a credit report to determine your overall credit standing, but no actual verification is done.  A Prequalification Letter tells sellers that the lender believes you will likely be approved for a mortgage.

In a "Pre-approval", the loan officer has checked on the information and reviewed your credit report. He or she determines the amount of a loan you would be able to obtain and also any loan programs for which you would be qualified. The "pre-approval" letter is a stronger indication to a home seller that you are financially qualified to receive a mortgage if they accept your purchase offer. Sellers don't want to take offers if they're worried the buyer will not be able to complete the purchase.  With a "pre-approval" letter, you will be in a stronger negotiating position and, statistics show, you may save as much as ten percent on the sales price of the home.

In addition, the loan officer can usually get you a mortgage commitment faster because of the preliminary work already done to obtain the "pre-approval".