You may have heard it’s important to get pre-approved for a mortgage at the beginning of the home buying process, but what does that really mean, and why is it so important?
Why Pre-Approval Is Key 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 and how much money you can borrow for your loan. Pre-approval from a lender is the best way to do this. Here’s how it works. According to NerdWallet, pre-approval is a letter that:
“. . . states the amount and type of mortgage the lender is willing to offer, along with the terms."
To get this written confirmation, you’ll need to provide information about your financials, including your income, employment information, your credit history, and more. NerdWallet explains:
“Preapproval requires you to provide proof of your financial history and stability. The lender will verify your income, employment, assets and debts, and will check your credit report. You'll provide information in the form of W-2s, a current pay stub, a summary of your assets and your total monthly expenses. . .”
While it may sound like a lot of documentation, the right professionals will make the process easy for you. Your pre-approval will help you know not just what you can borrow, but it’s also a great tool to help you set a budget and really understand your financial options. This way, you can begin your home search with a clear picture of what you want to look for.
Today’s Market Is Competitive, So Being Ready as a Buyer Is Key
The pre-approval process is more important than ever in today’s competitive market. With limited inventory, there are many more buyers than sellers right now, and that’s fueling competition for homes.
According to the National Association of Realtors (NAR), the average home is receiving multiple offers, so bidding wars are the norm as buyers compete with each other for their dream home. Pre-approval can help you stand out from the crowd.
It shows a seller that you’re a serious buyer. When a seller knows you’re qualified to purchase the home, you’re in a better position to be the winning offer. That’s because the seller will know you’re ready to move quickly.
Freddie Mac explains:
“By having a pre-approval letter from your lender, you’re telling the seller that you’re a serious buyer, and you’ve been pre-approved for a mortgage by your lender for a specific dollar amount. In a true bidding war, your offer will likely get dropped if you don’t already have one.”
Today’s housing market is changing day to day. So, you’re going to need guidance to navigate these waters. It’s important to have a team of professionals (a loan officer and a real estate agent) to help make your dreams a reality.
Bottom Line A pre-approval letter is an essential part of the homebuying process. Not only does being pre-approved bring clarity to your homebuying budget, it also shows sellers how serious you are about purchasing a home. Let’s connect so you have the expertise you need to tackle this step.