We are in a sellers’ market. Homebuyers are ready to move and there is a shortage of homes for sale. While now is a great time to buy a home because of record-low interest rates, it’s also very competitive as a result. For this reason (and many others) it’s important that you get a mortgage pre-approval before you begin your home search. Let’s take a closer look at what a mortgage pre-approval is and why you need it — especially right now.
What is a mortgage pre-approval?
Getting pre-approved for a mortgage is a critical first step in the homebuying process. When you get pre-approved it means that a lender has reviewed your finances and determined how much you can borrow, how much you can afford to pay each month, and what interest rate you would qualify for. They do this by examining your income, assets, credit history, and debt. The lender will then supply you with a letter that you can share with a seller to show that you’ve begun the process and the lender is willing to work with you. Be aware that while a pre-approval is a good start on the mortgage process, it does not guarantee that you will ultimately get a loan for the home you would like to purchase.
Why do I need it?
There are a number of reasons why getting a mortgage pre-approval is essential in today’s market.
- It helps you organize your finances — Applying for a mortgage is a hairy process and requires specific documentation. When you get pre-approved you’re getting a jump on gathering all that paperwork, including bank statements and tax forms. While you’re at it, get a copy of your credit report and check it for errors. If you find any, take the steps needed to have them removed.
- It helps you set a budget — It’s easy to get carried away when you start looking at homes. Before you know it, you may be daydreaming about homes you cannot afford. That’s both a waste of money and a waste of your precious time. Getting pre-approved shows you what you can afford so that you’re only looking at homes in your price range.
- It signals that you’re a serious buyer — In today’s market, you’ll be competing against other buyers when you put in an offer on a home. You can bet that all those other buyers will be pre-approved. If you aren’t, then don’t expect to have your offer accepted. Getting pre-approved shows sellers that you’re a serious buyer and have a good chance of making it to the closing table.
- It eases anxiety — Buying a home can be a stressful experience. But when you get pre-approved you can feel confident moving forward with your home purchase. With so many other things to worry about, it’s reassuring to take anxiety about your home loan off the table.