When it comes to getting a loan — any kind of a loan, pre-approval is
probably a good step. Whether you are looking for a home mortgage, or
even a car loan, pre-approval means that the bank has already decided
that you are credit worthy, and that you are eligible for a certain
amount of money. This helps you in two ways:

You know how much you can spend. This will help you limit your
choices only to what is actually available to you. You won’t be looking
at cars or homes that are too expensive for your budget.

Sellers know you are serious. One of the great things about
pre-approval is that it lets sellers know you are serious. When looking
for a home mortgage, you can show that you are a serious buyer, and
more agents and sellers will work with you. The same is true of car
loan shopping.

Caveat to pre-approval

It is important to realize, however, that pre-approval does have one
drawback. In order to be pre-approved, you will need a credit check.
This means that your credit score could be impacted, especially if you
are shopping around to multiple lenders. One thing you can do is get pre-qualified instead. We will look at pre-qualification tomorrow.