What is the purpose of pre-approval in the mortgage lending process?

The purpose of pre-approval in the mortgage lending process is to provide a lender's conditional commitment based on a comprehensive review of the borrower's financial information. During the pre-approval process, the lender examines the borrower's credit history, income, debts, and overall financial situation to assess their eligibility for a mortgage loan. This thorough evaluation enables the lender to determine how much money they are willing to lend and at what interest rate.

Pre-approval goes beyond mere pre-qualification, which is typically based on unverified information provided by the borrower. Instead, pre-approval offers a more robust indication of borrowing power, allowing the buyer to search for a home with confidence, knowing they have a lender's backing based on their financial standing. However, it is important to note that pre-approval is still conditional; it does not guarantee final loan approval, which is subject to additional factors, such as the property appraisal and ongoing financial evaluation at the time of closing.