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, your financial comfort level as it relates to 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 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.  In many cases, a pre-approval letter is a condition that must be met simply to view a property, especially in a Covid-19 world.   As part of my best practices, I include a pre-approval letter with all of my clients’ offers.

With limited inventory, there are many more buyers than sellers right now, a ratio 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.

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’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) 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.

In a competitive market with low inventory, a pre-approval letter is a critical piece of the homebuying process. If you’re ready to buy this year, let’s connect before you start searching for a home.