Confusing prequalification with preapproval can mean disappointment for both a home seller
and a buyer. Real estate experts say it's smart to urge buyers to become preapproved by their
lender – not just prequalified.
For buyers to obtain a bona fide preapproval, they must submit a loan application with the
necessary documentation and fee. After the lender verifies and analyzes the application, it will
notify the applicant of how much money he can afford to borrow. Armed with that information,
the buyer can confidently go home shopping.
Prequalifications are simply an estimate of what a buyer can afford. A buyer who assumes that
this estimate is accurate and chooses a home based on the information may, in fact, be denied
a loan when he actually applies. That results in a situation that wastes his time and can put a
seller in a bad position if they've already turned away a qualified buyer. And, of course, it wastes
the real estate practitioner's time as well. Source: Kiplinger’s Personal Finance Magazine (08/01/07)