While a pre-qualification letter is an estimate of what a lender thinks a borrower can get for a mortgage, a pre-approval letter (as its name implies) is a lender's approval of a loan (including how much can be borrowed and at what interest rate and term).

Unlike a pre-qualification letter, there is a fee for getting a pre-approval letter. This is because the lender will actually research and verify the borrower's credit, income, employment status, liabilities, and assets (unlike with a pre-qualification letter).

Along with providing more certainty about the specifics of their potential mortgage, the pre-approval letter also gives borrowers two advantages. The first is over other buyers that are interested in a similar property, since the letter is proof the borrower has a lender's financial backing.

Likewise, this level of commitment can sometimes motivate real estate agents to be more diligent in finding potential homes.

Additionally, should the borrower decide to make an offer on a property, the pre-approval letter speeds up the transaction process since the lender has already approved the loan.

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