What does "pre-approval" mean in the mortgage process?

Pre-approval in the mortgage process refers to a conditional lender commitment based on a thorough review of the borrower's creditworthiness. This process typically involves the lender evaluating the borrower's financial situation, including credit score, income, debt, and assets, to determine how much they would be willing to lend.

Obtaining pre-approval provides borrowers with a clear indication of the loan amount they may qualify for, which can help them in the home-buying process. It also gives sellers confidence that the buyer is financially capable of purchasing the property. However, it's important to note that this pre-approval is conditional, meaning that it requires further verification and will ultimately depend on additional factors, such as the appraisal of the property and a more detailed assessment of the borrower's finances at the time of application.

In contrast, a guaranteed loan amount based on property value implies a level of certainty that does not reflect the conditional nature of pre-approval. An estimate of closing costs pertains to the expenses that the borrower will incur at the closing of the loan, which is separate from the pre-approval process. Finally, a final approval for loan disbursement occurs later in the process when the lender is fully satisfied with all aspects of the loan application following underwriting and verification