You've heard people say they've been pre-qualified for a home loan; you've also probably heard people say they've been pre-approved. There's a world of difference between the two. If you are about to begin house hunting, the first thing to do is get pre-approved.
Here's the difference: pre-qualification involves speaking to a mortgage professional, telling him or her what your income is, and seeing how large a loan that would entitle you to - assuming you have good credit and nothing to bar your getting a long. Pre-approval, however, goes that extra step - you allow the mortgage professional to pull your credit and check your credit rating (and pulling credit through a mortgage company is a "soft ding" that doesn't adversely affect your credit rating). Listing agents will almost invariably ask the buyer's agent if their client has been pre-approved, and whether or not they are submitting a pre-approval letter with their offer; many agents advise their clients to be skeptical of readily accepting an offer which is not accompanied by a pre-approval letter, or at least the promise of one being sent within a reasonable time - if my client accepts an offer without a pre-approval letter, it's usually with a counter-offer making that a condition of acceptance, to be provided within 48 hours (if on a weekend).
Why do you want to get pre-approved? Aside from the comment above, here are other very pertinent reasons why you should make pre-approval a priority:
1. By knowing in advance that you can buy a home, and how much home you can afford, you insure that you look at the right homes. You don't waste time sorting through hundreds of homes on-line which may not be appropriate for you - you can narrow things down, and refine the search.
2. You don't overlook a house you might have been able to afford, and didn't know it, or - worse yet - fall in love with one just beyond your reach....then nothing that is within your price range is likely to look as good to you.
3. You won't get discouraged by looking at way too many houses; by narrowing your search to a few, you can examine them thoroughly, make notes, and actually remember which one had the drop-dead kitchen and which one had the antique bath tub.
4. You can enjoy a faster closing period. The lender will already be familiar with you, your credit rating, and your income, and will not be starting from scratch; given that, they may be able to push the loan process through more quickly.
5. Your offer will be taken more seriously - offers accompanied by a pre-approval letter get attention; the Listing Agent has more confidence in presenting the offer, and the Seller has more confidence that you will be able to follow through on your offer. Also, if the home is being handled by a major relocation company, most will not even consider an offer which is not accompanied by a pre-approval letter.
One thing which makes a huge difference is the location of the loan office where you are obtaining your loan. While internet loan companies sound tempting, think about this - if they fail to meet a deadline (and real estate deadlines are very firm), and they do not return your calls, can you or your agent go to their office and have a personal meeting with them to get things back on track? Much of the stress in any real estate transaction can come from the mortgage side of things; having a local loan officer can make a huge difference in relieving any sense of stress.
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