You may have heard that pre-approval is a great first step in the home buying process. But why is it so important?
When househunting starts, 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 with as 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 home buying 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) shows sellers you’re a qualified buyer. Demonstrating this upfront can really help you stand out from the crowd in the current ultra-competitive market.
How competitive is today’s market? Extremely – especially among buyers.
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 also 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 serious about buying the home, you’re potentially in a better position to win a bidding war and land the home of your dreams.
In fact, in Contra Costa County it is customary to include a pre-approval letter with your offer. It is rare that a seller would entertain an offer at all without this document. You’ve got to be prepared to jump if you find your dream home.
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 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 Realtor®) 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.
Bottom Line
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, let’s connect before you start searching for a home.
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