What is a "pre-approval" in the mortgage process?

A "pre-approval" in the mortgage process refers specifically to a lender’s commitment to lend a certain amount of money to a borrower, taking into account a preliminary review of the borrower’s financial information, such as their credit score, income, debts, and employment history. This assessment provides the potential homeowner with a solid understanding of how much they can afford to borrow and gives sellers confidence in the buyer's seriousness and financial capability.

This differs from other options such as a purchase offer from a buyer, which is a formal proposal to buy a property at a certain price, or a guarantee of a loan regardless of credit history, which is not feasible as lenders always consider creditworthiness. Additionally, a preliminary assessment of a property's value pertains to the appraisal process and is separate from the pre-approval step in securing financing. Thus, pre-approval plays a crucial role in empowering buyers during their search for homes and streamlining the loan process when they find a property they wish to purchase.