If you were taking a home buying class, the first thing you would talk about is getting pre-approved by a lender. Unless you're in the fortunate position of being able to pay for your new home up front, you will have to borrow money.
When the real estate market was slow, the sense of urgency to get financing was not very high. Buyers figured they could take their time to find a home and then they'd firm things up with their lender. Now the market is starting to improve, but financing remains difficult to get, so the first thing a serious buyer should do is line up their financing. This means getting pre-approved to borrow a certain amount, not just being pre-qualified.
There is a big difference. A pre-qualification is just an initial step, typically a phone conversation about your overall financial picture. The lender may discuss income, debts, and go over different payment options, but it should not be confused with a firm pre-approval.
In order to grant a pre-approval letter, a lender will probably complete a formal application, pull the buyer's credit report and collect specific documentation such as pay stubs, W-2's and tax returns. This will allow them to better define your maximum price range and that that they can make the loan.
Being pre-approved will make you a stronger buyer and allows you to move quickly if needed. In an active market, you never know when you'll find the home for you, but when you do, you should act quickly. If you have to wait while you get your financing in order, you may lose the home to other buyers.
Another benefit to being pre-approved is that real estate agents will take your interest more seriously and be willing to devote their time and money to helping you find a home. Many top agents require their clients have a firm pre-approval letter before they will show property. The same with sellers. A buyer who can demonstrate that they can actually buy the house is more likely to have their offer accepted and is in a stronger negotiating position.
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