For a lot of first-time homebuyers, one of the terms they may have encountered in their homeownership journey is “pre-approval” or “getting pre-approved for a mortgage”, but what exactly does it entail, and why is it so important? There are a couple of reasons as to why a potential buyer must have a pre-approval letter before making an offer, especially now in today’s market.
As we stated in our previous blog, this year, we’re going to witness a much more competitive market, particularly for home buyers. A pre-approval from a lender is the only way for a buyer to know exactly what their price range is and how much they can borrow for their loan. A pre-approval letter qualifies an individual as a buyer, which could be an advantage towards the buyer getting their dream home in this highly competitive market.
The competitive market continues to be due to a dip in inventory, we’re seeing more homebuyers this year than sellers likely due to the pandemic and its sudden surge in late 2021, once again 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 (possibly even more in competitive urban markets such as Los Angeles). As a result, bidding wars commence and if a buyer is pre-approved, the chances of their offer even being considered greatly increases. When a seller is aware that a potential buyer is qualified to buy the home, in advance, then they’re in a better position to win a bidding war. Seller’s offer deadlines are increasingly tight in comparison to when the property is listed. The entire offer writing and consideration process is moving much more quickly in this competitive market and having your pre approval letter up front will save you time and stress once you’re ready to write that offer.
The market is constantly changing so every step you can take to gain an advantage as a buyer is crucial if you’re serious about purchasing the house of your dreams. Interest rates and prices are rising and lending institutions are regularly updating their standards. Getting yourself a guide will absolutely be an advantage for you to test the waters. Having a team of professionals such as a loan officer and a trusted real estate advisor is the key to ensuring that you take the right steps and can exhibit your qualifications as a buyer when you find a home to purchase.
The bottom line is that in a competitive market with low inventory, a pre-approval letter is the key instrument for serious buyers in their home buying process because it brings clarity to their budget and it shows sellers that they’re serious about purchasing a property.