What is the purpose of a pre-qualification letter?

A pre-qualification letter serves to provide some assurance of a buyer's ability to qualify for a loan. This letter is typically issued by a lender after briefly assessing the buyer's financial situation, which may include a review of their credit score, income, and debts. While it does not guarantee financing or indicate that the application process is complete, it gives sellers confidence that the buyer is likely capable of obtaining financing based on preliminary evaluations.

Essentially, the pre-qualification process helps buyers understand the price range they can afford and signals to sellers that the buyer is serious. However, it is important to note that since this letter is based on initial information provided by the buyer and not on a thorough underwriting process, it does not carry the weight of a full loan approval.