What's the difference? 

This is a common question and you should understand the value of the answer and how it impacts your ability to win when making an offer. 

Being Pre-Approved is more powerful than being Pre-Qualified.

Getting Pre-Approved is more strenuous exercise with your lender.  You will need to complete a mortgage application, sometimes pay a fee, and provide physical documentation (proof) on your income, debts, and assets.  The lender will check your credit rating, verify employments, debts, etc.  Based on this, the lender can give you an approval for a specific amount of mortgage to help you find the right home for your budget. Using this you can feel more comfortable that when you make an offer your lender will grant a mortgage.  Once your offer is accepted, you will present it to the lender for final approval to their underwriters to confirm their Pre-Approval.

Getting Pre-Qualified is a rather simple process in the mortgage process.  A bank or lender will discuss, no documents required, an overall high level view of your financial position including debt, income and assets.  With this they will perform a simple mathematical evaluation using lending ratios of their company and provide you an idea on the amount of home you can “qualify” for in the market.  This will give you an idea on the price range of homes you may want to view but is not more than an estimate.

Why is this Important?  A Seller views an offer from a Pre-Approved Buyer as more valuable than a Pre-Qualified Buyer since the process has been more thorough in the review by a lender, therefore less risky for the Seller that the deal may not close.  Click here for an article by Brian O'Connell of Investopedia February 26, 2009

If you are serious about getting your Offer accepted, especially in a competitive market, make sure to find a lender and get Pre-Approved!