You may have heard that pre-approval is a great first step in the homebuying 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 monthly mortgage payment you’re comfortable with, 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 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, something that can really help you stand out from the crowd in the current ultra-competitive market.
How Competitive Is Today’s Market?
Today’s real estate market is extremely competitive– especially among buyers.
With limited inventory, there are many more buyers than sellers right now which is 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 and helps you stand out from the crowd in multiple-offer scenarios, which are very likely to happen 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 land 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 also changing from moment to moment. Interest rates are low, prices are going up, and lenders 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) who are making sure you take the right steps along the way and who can prove your qualifications to the seller at the time you find a home to purchase.
Source: Keeping Current Matters
In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the homebuying process and one that cannot be sacrificed.
At Neo Home Loans, we know financing a home can be scary, confusing, and hard at times. However, there is no need for you to be intimidated by the competition in the housing market. If you would like to get pre-approved for a home loan or have questions about how the process works, fill out the free consultation form below to speak with one of our mortgage advisors.