You may have been told that its important to get pre-approved at the beginning of the homebuying process, but what does that really mean, and why is it so important? Especially in todays market, with rising home prices and high buyer competition, its crucial to have a clear understanding of your budget so you stand out to sellers as a serious homebuyer.
Being intentional and competitive are musts when buying a home right now. Pre-approval from a lender is the only way to know your true price range and how much money you can borrow for your loan. Just as important, being able to present a pre-approval letter shows sellers youre a qualified buyer, something that can really help you land your dream home in an ultra-competitive market.
With limited housing inventory, there are many more buyers active in the market than there are sellers, and thats creating some serious competition. According to the National Association of Realtors (NAR), homes are receiving an average of 5.1 offers for sellers to consider. As a result, bidding wars are more and more common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, its likely you will. When a seller knows youre qualified to buy the home, youre in a better position to potentially win the bidding war.
Freddie Mac explains:
By havinga pre-approval letterfrom your lender, youre telling the seller that youre a serious buyer, and youve 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 dont already have one.
Every step you can take to gain an advantage as a buyer is crucial when todays market is constantly changing. Interest rates are low, prices are going up, and lending institutions are regularly updating their standards. Youre going to need guidance to navigate these waters, so its important to have a team of professionals such as a loan officer and a trusted real estate agent making sure you take the right steps and can show your qualifications as a buyer when you find a home to purchase.
Bottom Line
In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the homebuying process. Not only does being pre-approved bring clarity to your homebuying budget, but it shows sellers how serious you are about purchasing a home.
