The full explanation
That letter is not a guaranteed loan offer and does not commit the lender to a set amount. Lenders use the words "prequalification" and "preapproval" differently, so ask what your letter is based on. The lender may check your credit and, if it tells you that you do not qualify, it must give you an adverse action notice.
An example
Before house hunting, Teresa gives a lender information about her income and debts and gets a prequalification letter. She knows it is not an approval, so she asks what documents she will need for preapproval.
You will see it in…
- The prequalification letter the lender gives you
- Lender advertising (“prequalify in minutes”)
- Your purchase offer, when the seller asks to see a lender letter
