Is being pre-approved in the home buying process that important? Short Answer – YES!
Time and time again we remind our clients how important the pre-approval process is. It should be the first step you take after deciding that you want to purchase a home or an investment property. Why is this such an important first step? Well there are a couple reasons:
- You need to know what you can afford
- Temptation of falling in love with a home and losing it because you were not prepared
- Inability to provide a complete offer package to the sellers with your realtor.
These are just a few reasons and you can see why it is s important to start the process this way, especially in a market like we have today where demand is high and supply is low. We are currently looking at an inventory of homes for sale more than 40% less that the same time last year. Combine that with historically low interest rates and you’re going to see what we see everyday, a bidding wars between buyers to get into the best position possible for the sellers to accept their offer…which contains a pre-approval letter (unless you’re paying cash).
A survey from realtor.com states 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.”
The pre-qualification from your lender shows home owners who have their property on the market that you are serious buyer and you meet the basic criteria financially to get to the underwriting process once you have your offer accepted. I tell my clients all the time this a version of this quote below, but it might sound better coming from Danielle Hale, Chief Economist for realtor.com who 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.’”
The only thing I will disagree with is the word “typically”. There are 4 items you should always include with any offer.
- A cover letter introducing yourself to the seller
- Residential purchase agreement
- Pre-qualification letter
- Proof of funds for downpayment and closing costs
This is all standard in a typical real estate transaction but in today market of low interest rates and inventory, it gets even more complicated. Guidance from a lender and realtor are key if you want to get into a new home or maybe even your first. My recommendation is to educate yourself as much as possible by going straight to the source, the professionals who are doing this every day. If you aren’t comfortable asking questions there are many sources online you can follow. @whatsamortgage on instagram is one of my favorites because they provide daily videos, visuals and education about what it takes to get qualified for a loan and mistakes to avoid. They also go live a few times a week to discuss whats happening in the market today and how to position yourself to be successful while answering your questions live.
Here is a great example from this week.
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Conventional loans are a lot more flexible than FHA loans. To qualify, you must either be a U.S. citizen, permanent resident, Work visa, or DACA. You can use conventional loans for Owner occupied properties, investments, or second homes. Unlike FHA, if you upgrade there is no 100 mile to use the rent. You can also use conventional loans for Single Family homes, Condos, Duplex, Triplex or Fourplex. There is no self-sufficient rule on units, unlike FHA. #homeowner #realestateinvesting #firsttimehomebuyer #firsthome #homeownership #newhomes #homebuyer #homebuying #realtorsofinstagram #homesale #realestatenews #homesearch #homeinspection #buyingahome #firsttimehomebuyers #househunters #loanofficer #realestateadvice #berkshirehathaway #buyingahouse #buyahouse #webuyhouses #mortgagelife
One of my favorite quotes from Minh in the video above is:
“Fall in love with the payment before you fall in love with the house”
This market has been a game changer for everyone involved. Buyers, seller, realtors, title officer, escrow officers and lenders have all had to adapt because of the market and Covid-19. If you are looking to buy, make sure you have a team of professionals in place to help you along the way to help you reach your goals and navigate you through the process, even before you start looking at homes. If you’re thinking about selling your home, don’t confine yourself to just the traditional way of selling. There are number of ways you sell your home and maximize your profits and we are happy to share our knowledge with you. For more information contact us here.
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