Obtaining financial pre-approval is the first big step in the home-buying process. You may have heard the term before, but what does it actually mean?
Getting pre-approved for a loan means that you've already spoken with a lender (e.g., a bank, a credit union, a mortgage broker, etc) and that they've reviewed and approved you for a loan. They do this by checking your credit, bank accounts, current employment (and maybe your employment history), and anything else they deem necessary before they can lend you the money to purchase a home.
Why is this necessary?
I usually recommend that you do this before you even start looking for homes because it gives you a realistic esimate of the price range you can look in.
For example, if, your lender pre-approves you for up to $250,000, then you'll know that you can search for homes up-to $250,000. Additionally, if you find a home that you want to make an offer on, providing the pre-approval as part of your offer will usually get you a better negotiating position if there are multiple people making offers on the same property.
There's nothing worse than finding your dream home only to realize you don't qualify for the loan, or to have someone else buy it because your financing wasn't in place on time. That's why you need a pre-approval.