Definition
Pre-approval is a lender's conditional commitment to finance a buyer, issued after reviewing their income, assets, and credit history. It's considerably stronger than a pre-qualification, which is often just an informal conversation with no verification behind it. Even so, pre-approval is not a guarantee — the loan still has to survive full underwriting, and things can change if the buyer's finances shift or the appraisal comes back low. Sellers should treat a pre-approval letter as a helpful sign of seriousness, not a promise the sale will actually close.
Example
Owen's buyer arrived with a solid pre-approval letter showing more than enough income to cover the mortgage, but then financed a new truck purchase midway through escrow without telling anyone. That new debt shifted the buyer's debt-to-income ratio enough that the lender re-ran the numbers and ultimately denied the loan just weeks before the scheduled closing. The sale collapsed three weeks in, and Owen had to relist the home from scratch, losing valuable time in a market that had cooled slightly in the interim. He was frustrated that a pre-approval he'd trusted turned out to mean so little once the buyer's finances changed. He later made sure to ask future buyers to avoid any new financing activity for the remainder of escrow, and he added a firm contingency deadline to protect his timeline. His next buyer, a cash purchaser, closed in eleven days with no financing risk at all.