You may have heard that pre-approval is a great first step in the home buying process. But why is it so
important? When looking for a home, the temptation to fall in love with a house
that’s outside your budget is very real. So, before you start shopping around,
it’s helpful to know your price range, what you’re comfortable within a monthly
mortgage payment, and ultimately how much money you can borrow for your loan.
Pre-approval from a lender is the only way to do this.
According to a recent survey from realtor.com, many buyers
are making the mistake of skipping the pre-approval step in the homebuying
“Of over 2,000 active home shoppers who plan to purchase
a home in the next 12 months, only 52% obtained a pre-approval letter before
beginning their home search, which means nearly half of home buyers are missing
this crucial piece of paperwork.”
This paperwork (the pre-approval letter) shows sellers
you’re a qualified buyer, something that can really help you stand out from the
crowd in the current ultra-competitive market.
How competitive is today’s market? Extremely – especially
With limited inventory, there are many more buyers than sellers right
now, and that’s fueling the competition. According to the National
Association of Realtors (NAR), homes are receiving an average of 2.9 offers for sellers to negotiate, so bidding wars are heating up.
Pre-approval shows homeowners you’re a serious buyer. It
helps you stand out from the crowd if you get into a multiple-offer scenario,
and these days, it’s likely. When a seller knows you’re qualified to buy the
home, you’re in a better position to potentially win the bidding war and land
the home of your dreams.
Danielle Hale, Chief Economist for realtor.com
“For ‘a buyer in a competitive market, it’s typically
essential to have pre-approval done in order to submit an offer, so getting
it done before you even look at homes is a smart move that will enable a buyer
to move fast to put an offer in on the right home.’”
In addition, today’s housing market is also changing from
moment to moment. Interest rates are low, prices are going up, and lending institutions are regularly
updating their standards. You’re going to need guidance to navigate these
waters, so it’s important to have a team of professionals (a loan officer and a
real estate agent) making sure you take the right steps along the way and can
show your qualifications as a buyer at the time you find a home to purchase.
In a competitive market with low inventory, a pre-approval
letter is a game-changing piece of the home buying process.