Why Is It so Important to Be Pre-Approved in the Homebuying Process?

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 is outside your budget is very real – especially as prices rise due to increased buyer demand and limited inventory. So, before you start shopping around, it is helpful to know your price range, what you’re comfortable with for a monthly mortgage payment, and ultimately how much money you can borrow for your loan. Pre-approval from an experienced lender is the only way to do this – and bonus points if they are local to the market you’re shopping in.

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 are a qualified buyer, something that can really help you stand out from the crowd in the current ultra-competitive market – and is becoming a minimum requirement to submit an offer in most parts of the country.

How competitive is today’s market? Extremely – especially among buyers.

With limited inventory, there are many more buyers than sellers right now, and that 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. In the Twin Cities market we had three recent listings receive 5, 11, and 16 offers.

Pre-approval shows homeowners you are 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 are 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 lending institutions are regularly updating their standards. You are going to need guidance to navigate these waters, so it is important to have a team of professionals (an experienced loan officer and real estate agent) 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 first step of the homebuying process. If you are looking to buy this year, let’s connect before you start searching for a home so we can introduce you to some excellent mortgage lenders.