The general idea behind pre-qualifying is this: you're a home buyer. You do not have enough money to pay cash (this makes you absolutely normal). Your ability to buy a new home depends on your ability to borrow. It makes sense to speak with lenders to check your mortgage power and consider which loan program might be best for you before looking at houses.

One lender offers to "pre-qualify" you while a second lender has a "pre-approval" program. Which is better? Is there an a single definition for each term or an objective difference between them?

Pre-approval is usually a more formal process which includes a credit check and perhaps even an employment verification.

Pre-qualification is normally an estimate of borrowing power.

The definition of each term is flexible; the meanings vary from place to place, from lender to lender, and are dependent on who you ask. Neither term identifies absolute loan commitments. Lenders still need to look at property appraisals, verify information, and in many cases, re-check credit before agreeing to make a loan.

If these are not full loan commitments, why should buyers bother? By speaking with a lender you can get an informed idea of how much you can afford, which homes are in your price range, and which loan programs might be best for you. On the basis of your meeting, the lender can provide a letter suggesting in broad terms that you will probably qualify for a specific amount of financing.

The letter will contain a caveat stating that it does not represent an actual loan commitment; the lender reserves the right to review the appraisal, verify credit and employment information and take such other steps as it feels are necessary to reduce risk.

Pre-qualification or pre-approval demonstrates to brokers and to sellers that you're serious and that you have a good idea of what you can afford. For sellers, an offer from someone who has pre-qualified or sought pre-approval is to be preferred over an offer from someone who has has little idea of what might or might not be affordable.

Talk with local brokers and lenders to learn more about this process. Below are three books that provide additional information about buying a home.

"The Homebuying Game: A Quick and Easy Way to Get the Best Home for Your Money," by Julie Garton-Good (ISBN: 0793116465)

"The Home Buyer's Kit : Finding Your Dream Home, Financing Your Purchase, Making the Best Deal, Gaining Tax Benefits," by Edith Lank (ISBN: 0793126657)

"The Language of Real Estate," by John W. Reilly (fourth edition, ISBN: 0793105838)