You probably have heard how important it is to have your financial affairs in order before beginning the process of buying a home.

What does that mean? Besides paying off existing debts and postponing large purchases, it is prudent to do some preliminary legwork by getting preapproved or prequalified for a mortgage before you dive into the house-hunting process.

The difference between prequalification and preapproval for a loan is commonly misunderstood.

Although either scenario puts the consumer in a stronger position as a buyer, being preapproved carries much more weight. It helps your Realtor know how much you can borrow, which enables him or her to show you houses in your price range. It also makes the next step — getting a loan — faster and easier. In today's marketplace, many sellers want to see at least one of these two letters before responding to an offer to purchase the house. Many, if not all, third-party sellers who handle foreclosures and short sales require this to be included in the offer.

Prequalified

When you are prequalified for a home loan, you provide a lender approximate income, current debts and any important details from your credit history.

The lender will use these figures to calculate how much money you may be eligible to borrow prior to application for a loan.

You may be provided with a conditional qualification letter, which determines your likelihood of obtaining a loan. However, all information submitted during prequalification is subject to verification at the time the loan application is submitted.

Because your financial situation has yet to be verified, there is no guarantee of a home loan.

Preapproved

Typically, preapproval means your financial situation has been verified by the lender.

When you get preapproved, you complete a mortgage loan application. In some cases you may have to pay an application fee. After an extensive examination of your financial situation, your lender will commit, in writing, to fund your loan, pending a successful appraisal of the home and a few other conditions.

Additionally, even though you're not obligated to follow through with the loan, pending any changes, lenders must stand behind their written loan commitments.

Having a preapproval letter is as close to a sure thing as you can get in the lending world. It enables you to act quickly when you find the right home and gives you more legitimacy as a buyer.

There are some things that could cause a lender to withdraw from providing a loan after a preapproval letter is issued. Many lenders will re-check a consumer's credit before funding a loan. Abstain from applying for any new loans, including credit cards. An inquiry into your credit could lower your score and significantly affect your interest rate or cause a loan to be denied outright.

Know thy credit

If you haven't done so, secure a copy of your credit report, which lists your financial history, including total debt and whether you pay bills on time.

Checking your credit report regularly is the best way to spot identity theft, credit report errors or other financial missteps that could affect your ability to buy a home.

The Fair and Accurate Credit Transactions Act of 2003 made it possible for consumers to access one free copy of their credit report every year. To request a report, visit www.AnnualCreditReport.com.

For more information, visit TexasRealEstate.com and HAR.com.

If you're a first-time homebuyer, this might seem overwhelming to you.  We are happy to help you sort out any questions or concerns you might have.  Whether you want more information on the process, the current inventory, or the $8000 tax credit, contact us - we are here to help!