“The first step used to be one of the last.”  This is according to an article taken from the Gazette, Colorado Springs’ local newspaper.  It used to be a common practice for home buyers to select their new home before going to the lender and getting their financing arranged.  But over the last few years this trend has changed.
The article added that “…by the time potential homeowners are looking at houses, they already should have talked with their mortgage lender.”  By getting with a mortgage lender, one of two things can be accomplished, a pre-qualification or a credit approval.  Allow us to explain the difference.

Pre-Qualification.  This is usually a quick, simple, and informal way to determine a home buyer's price range.  With income and debt information, a loan officer can calculate a monthly payment and the sales price a home buyer might qualify for.  The loan officer will also look at the amount of cash available to the buyer for the down payment and closing costs.  The idea behind the ‘pre-qual’ is to give a buyer an estimated price range in which to shop.  It is by no means a guaranty that he will receive a mortgage loan.
Credit Approval.  This is the preferred option.  The credit approval means a loan underwriter has reviewed your loan package.  Only the underwriter has the authority to approve a mortgage loan.  In order to submit a loan to the underwriter, the file must include a completed loan application, documentation from the borrower (see our application checklist), verifications (of income, deposits, etc.), and a credit report.

The Gazette goes on to say; “The industry standard of pre-qualification letters for a loan amount is giving way to buyers who have gone through the credit approval process – without a specific property in mind…Those pre-qual letters are just not holding up like they used to.  Buyers who get a credit approval are viewed much more favorably by the sellers.”
When you find the house you want to buy and you're ready to make an offer, you'll need to consider the offers that you may be competing with. “More than one third of the home buyers go through the process of being credit approved, and that number is growing!” says the article.
Also noted in the paper was the confidence and relief you get with a credit approval.  “…so you can walk around with that great feeling of ‘I've got $150,000 in my pocket’.  They (buyers) become much more excited and everyone is more relaxed, especially the first time buyers.”