You Need a Pre-Approval Letter and Here's Why

First, a pre-approval letter is not the same as a pre-qualification letter.  A pre-qualification letter can be generated in a few minutes by calling a lender, or on line, and is based on information you provide and a quick credit check.  A pre-approval letter, on the other hand, requires verification of income, employment and financial information.  It is an actual approval of you, the buyer, subject to the property meeting lender appraisal guidelines. 

A lender is not bound by the pre-approval letter, but as long as your financial condition does not change in an adverse way, or the time commitment has not lapsed, it is deemed dependable.  Note that interest rates could change too, which may affect the terms of the pre-approval . . . good or bad.

Why is a pre-approval letter a must?

1. You will know how much you qualify to borrow.  Before running around looking at houses, you will know exactly how much you can spend, adjusted for taxes, insurance, homeowner fees, etc.  This allows you and your agent to focus on what you can do, and avoid wasting time pursuing properties beyond your means.  You also may be pleasantly surprised by how much you can buy at today's low interest rates.
2. Your offer will be taken very seriously by sellers and seller's agents.  A pre-approved buyer is a credible buyer.  You can often get a better deal when the seller knows you can perform and are not wasting their time.  A pre-approval makes you a much stronger negotiator.  Some sellers, on advice from their agent, will insist on a pre-approval prior to accepting your offer. 
3. If you are purchasing a bank-owned property, they won't even look at your offer with out a pre-approval.  Pre-approvals are a must in the REO landscape.  
4. Your agent will also take you seriously, and will provide you with their best time and attention.  A pre-approval allows your agent to focus on the best available properties that meet your needs, and also empowers your agent with the tools to be the best negotiator on your behalf.  Some agents won't even work with buyers until they get pre-approved.

Yes, a pre-approval takes some time and energy, and you must provide quite a bit of information to your loan officer.  However, if you are committed to buying a home, then you are going to have to do this anyway . . . so why not do it up front and give yourself the extra advantages of being a pre-approved buyer.