There are many reasons to be pre-qualified or pre-approved, we will focus on the most important ones.
First being Pre-qualified or Pre-Approved for a specific loan amount helps you to set your expectations and limits when selecting your home. You may qualify for more than you want to spend, but it is always good to know you have that edge available.
Being Pre-Qualified or Pre-Approved can be used as a negotiation point when writing a contract offer. Pre-Approved status offers a better negotiation point, but a contract offer that has a documented pre-qualified or pre-approved letter will normally be accepted over contract where there is no verification of funds of loan included. The letter from the lends puts the sellers mind at ease that the contract will not fall apart at the last minute due to financial issues associated with the purchaser’s credit or buying power.
Many home sellers will not even accept any contracts where there is not some type of lender’s letter indicating a pre-qualified or pre-/approved status or a statement showing verification of funds to purchase (bank statement for cash purchases).
Begin by talking to a lender first. They will tell you about all of the documentation and information that is required for the pre-qualification letter to be issued on your behalf.
By talking to the lender first, it allows time to correct minor credit issues. After you provide your basic informtion and permission to the lender, they will run a credit check on you and your spouse if applicable. If something should show up on your report that you did not expect, it allows you to contact that creditor and resolve or dispute the issue to render your report accurate. Then you can plan and correct those problems prior to proceeding so they won’t affect your loan amount.
Note: even with less than perfect credit, you will probably still be approved. However, there is ultimately a cost to having damaged credit. This cost is reflected in the lender requiring a higher down payment, loans with higher interest rates, different terms and/or higher closing costs.
For complete and accurate information I will put you in touch with a mortgage specialist.