Getting pre-qualified for a mortgage
Getting pre-qualified for a mortgage helps give you an idea of how much you might qualify to borrow. But since you have not actually applied for a loan, and the lender only has your word on your credit, income, assets and liabilities, a home loan or mortgage amount is not guaranteed. With a pre-qualification, no information has been verified. If you receive a letter from the lender, it may only state that you are likely to be approved for a mortgage.
Getting a pre-approved mortgage
A pre-approval goes one step further than a pre-qualification. When getting pre-approved, you may receive a letter stating how much you qualify to borrow. Your lender will pull your credit report and find out what liabilities you have. However, not everything (namely your income and assets) is verified.
Pre-approvals don't always guarantee financing since the buyer's information has not been verified. Think of it this way: a mortgage pre-approval is like getting a pre-approval letter in the mail for a credit card. You can't go to the store and buy anything with that letter you have to have the approved credit card. Having a firm mortgage approval is like having the actual credit card.
And unfortunately, sometimes not all buyers are completely honest or accurate when they give their financial information to a lender. It's not unusual for some buyers to inflate their income or savings. Issues like these have caused many real estate agents and home sellers to distrust pre-approval letters.