You may have heard that it’s important to get pre-approved for a mortgage at the beginning of the home buying process. What does that mean, and why is it so important? Especially in today’s market, with rising home prices and high buyer competition, it’s crucial to have a pre-approval letter before making an offer. Here’s why.
Being intentional and competitive are musts when buying a home this year. 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 you’re a qualified buyer, something that can 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 that’s creating some serious competition. According to the National Association of Realtors (NAR), homes today are receiving an average of 3.8 offers for sellers to consider. As a result, bidding wars are still common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, it’s likely you will. When a seller knows you’re qualified to buy the home, you’re in a better position to win the bidding war potentially.
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.”
Every step you can take to gain an advantage as a buyer is crucial when constantly changing today’s market. Interest rates are rising, prices are increasing, and lending institutions regularly update their standards. You need guidance to navigate these waters, with a team of professionals such as a loan officer and a trusted real estate advisor making sure you take the right steps and show your qualifications as a buyer when you find a home to purchase.
A pre-approval letter is game-changing in the home buying process for a competitive market with low inventory. Not only does being pre-approved bring clarity to your home buying budget, but it shows sellers how serious you are about purchasing a home.