What does a pre-approval signify in the mortgage process?

A pre-approval signifies a lender's conditional commitment to provide a loan, which means that the lender has reviewed the borrower's financial information, such as credit score, income, and debt-to-income ratio, and has determined that the borrower meets the criteria for a mortgage up to a certain amount, pending a final approval after an appraisal and underwriting process.

This process gives the borrower an idea of how much they can potentially borrow and can strengthen their position when making an offer on a property, as sellers often prefer buyers who have been pre-approved. Importantly, it is not a final loan approval, as that comes later in the mortgage process after all conditions have been met. It also does not guarantee funds in a way that allows the borrower to act without limitations or assures them of receiving the maximum loan amount without further assessment.