What does a "pre-approval letter" signify to both buyers and sellers?

A pre-approval letter signifies that a lender has conditionally agreed to provide a specific loan amount to the buyer, based on an assessment of their financial background, creditworthiness, and other relevant factors. This condition typically includes the buyer fulfilling certain requirements before the actual loan is finalized, such as providing documentation or meeting particular financial milestones.

For sellers, receiving a pre-approval letter from a prospective buyer is significant because it demonstrates that the buyer has taken steps to ensure they can secure financing for the home purchase. This can increase the buyer's credibility and make their offer more appealing, as it reduces the uncertainty surrounding the buyer's ability to finance the home.

The pre-approval letter does not mean that funds have already been secured for the purchase; instead, it indicates that the lender is willing to lend contingent upon certain conditions. It is also not a formal contract between the buyer and lender, nor does it guarantee acceptance of the buyer's offer by the seller. Instead, it provides a level of confidence for both parties involved in the transaction.