Confusing pre-qualification with pre-approval can mean disappointment for both a home seller and a buyer. Real estate experts say it's smart to urge buyers to become pre-approved by their lender - not just pre-qualified.
For buyers to obtain a bona fide pre-approval, 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/she can afford to borrow. Arrmed with that information, the buyer can confidently go home shopping.
Pre-qualifications are simply an estimate of what a buyer can afford. A buyer who assumes that his estimate is accurate and chooses a home based on the information may, in fact, may be denied a loan when he/she actually applies. That results in a situation that wastes the buyer's time and can put a seller in a bad position, if they've already turned away another qualified buyer. (And, of course, it wastes the real estate practioner's time as well.)
Source: Realtor Magazine Online Daily Real Estate News - July 16, 2007 Kiplinger's personal Finance Magazine (09/01/07)