Pre-Approval Makes All the Difference When Buying a Home

Published:
September 21, 2021
Last updated:
September 24, 2021
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If you want to buy a home, getting a mortgage pre-approval is the first thing you should do. It makes your plans more credible, informs your search for a home, and makes the closing process go much faster.

Being pre-approved for a house loan is a major milestone. It definitively proves that you have a strong financial track record and that you are ready to buy a home. Far more than just getting prequalified, the documentation and financial planning habits that it takes to get pre-approved are the most essential of all qualified homebuyer tasks.

Moreover, you have likely been told more than once that it is important to get approved at the beginning of the homebuying process, but what does that really mean, and why is it so important? For starters, it gives you more power and allows you to negotiate on your terms, which is crucial in today’s market, with rising home prices, and high buyer competition.

Why Is Getting Pre-Approved So Important When Buying A House?

You should definitely have a clear understanding of your budget, so you stand out to sellers as a serious homebuyer. In fact, being intentional and competitive are musts when buying a home right now.

Not only does a pre-approval from a lender gives you a better idea of your true price range, but it also determines just how much money you can borrow for your loan. What’s more, presenting a pre-approval letter shows sellers you are a qualified buyer—which can help you land your dream home in an ultra-competitive market.

At the moment, with limited housing inventory, there are many more buyers active in the market than there are sellers, creating some serious competition. According to the National Association of Realtors (NAR), homes are receiving an average of 5.1 offers for sellers to consider.

As a result, bidding wars are more and more common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, it is likely you will. When a seller knows you are qualified to buy the home, you are in a better position to get your offer accepted.

What Are Some Highlights Of A Mortgage Pre-Approval?

Clearly, there are more than a few benefits to getting pre-approved. Freddie Mac explains:

“By having a pre-approval letter from your lender, you are telling the seller that you are a serious buyer, and you have been pre-approved for a mortgage by your lender for a specific dollar amount. And, in a true bidding war, your offer will likely get dropped if you do not already have one.”

In general, a mortgage pre-approval means a lender has reviewed your finances and used specific factors to determine how much you are qualified to borrow. These factors typically include your income, any debt (personal loans, student loans, credit cards, etc.), and credit history.

As suggested, being pre-approved for a home loan can give you clarity while planning your home buying budget. And if you know your budget, you can start house hunting accordingly (and not waste time viewing houses out of your price range or with too high of a purchase price). A pre-approval also gives many borrowers confidence in their ability to secure a home loan and an overall competitive edge.

What’s more, a mortgage pre-approval will speed up the closing process. Here, since the mortgage approvals have already been taken care of, you can focus on the next steps like appraisals and inspections. This is especially helpful when you are trying to buy a home while the selection is limited. Thus, there is no denying that in today’s market, connecting with a lender to get pre-approved may be the game-changer that helps you secure your dream home.

When Should You Get Pre-Approved For A Home Loan?

Before you can begin the home buying process, you will first need to obtain pre-approval from your current lender. Of course, this particular process is often slightly different for each mortgage lender and is based on a number of factors that determine whether or not your application is successful. But be that as it may, it should absolutely be your first step.

Note, the first step in the home loan or mortgage application process is prequalification, which helps you understand the approximate loan amount you can expect to qualify for. In contrast, the pre-approval process is more involved and based on a more accurate picture of your credit history and financial health.

That said, after submitting a mortgage application, getting pre-approved is what you need to do next to kickstart your home purchase. So first-time homebuyers, make sure you know the difference between these two important steps-prequalification and pre-approval. And remember, a pre-approval will give you a better idea of how much you can borrow as well as what your estimated costs (monthly mortgage payments, closing costs, insurance, property taxes, and more) will look like.

Plus, you will be able to figure out what interest rates you can expect on your loans. Mortgage pre-approvals are typically valid for 60 to 90 days.

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What Is The Bottom Line?

Ultimately, a pre-approval letter is a game-changing piece of the homebuying process in a competitive market with low inventory. Not only does being approved from the onset bring clarity to your home buying budget, but it shows sellers how serious you are about purchasing a particular property. And every step you can take to gain an advantage as a buyer is crucial when the market is constantly changing. 

Even with lower interest rates, home prices are going up, and lending institutions regularly update their standards. Consequently, it pays to have the right assistance to navigate these waters. So do yourself a favor, check out multiple lenders, and find a team of professionals who understand your financial situation.

Because at the end of the day, an expert loan officer and a local real estate agent by your side can ensure that you take the right steps, have access to the best loan options, and find your future dream home.

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Ready To Get Pre-Approved?

Are you curious about home loans and the pre-approval process? Or are you interested in applying for a mortgage? If so, Sammamish Mortgage can help. We are a local online mortgage company/service provider from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs, home loan products, and services to (seasoned and first-time) homebuyers all over the Pacific Northwest and have been doing so since 1992. Connect with us today and get the answers to any questions you have about mortgages.

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