Why Is It so Important to Be Pre-Approved in the Home Buying Process?
You may have heard that pre-approval is a smart first step in the homebuying process. But why is it so important? It's very realistic to fall in love with a home that's outside your budget, when you are in the search mode. So, before the home shopping begins, it’s helpful to know your price range, your monthly mortgage payment comfort level, and ultimately how much money you can borrow for your loan. Pre-approval from a lender is the only way to do this.
A recent survey from realtor.com, showed many buyers are making the mistake of skipping the pre-approval step in the homebuying process:
“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) demonstrates to sellers you’re a qualified buyer, which can really help you in our current ultra-competitive market. Note that the buyer market is extremely competitive at this time.
With limited inventory, buyers outnumber sellers currently, 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, and that inevitably cranks up the bidding wars.
Pre-approval allows you to present yourself as a serious buyer. It seperates you from the crowd if there is a multiple-offer scenario, and that is common these days. When a seller knows you’re qualified to buy the home, you’re in a better position to potentially win the bidding war and purchase the home of your dreams.
Danielle Hale, Chief Economist for realtor.com notes:
“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 continuously changing. Interest rates are low, prices are increasing, and lending institutions are regularly updating their standards. Professional guidance will help you navigate these waters, so it’s important to have a team of them (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 once you find a home to purchase.
In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the homebuying process. If you’re ready to buy this year, reach out to a local real estate professional (who can also connect you with a trusted lender) before you start searching for a home.