There’s one essential step in the homebuying process you may not know a whole lot about and that’s pre-approval. Here’s a rundown of what it is and why it’s so important right now.
What Is Pre-Approval?
Pre-approval is like getting a green light from a lender. It lets you know how much they’re willing to let you borrow for a home. To determine that number, a lender looks at your financial history. According to Realtor.com, these are some of the documents a lender may ask you for during this process:
W-2s from the last two years
Tax returns from the last two years
Pay stubs from the last 30 days
Bank statements from the last 60 days
Investment account statements (if applicable)
Two years of history of where you’ve lived
The result? You’ll get a pre-approval letter showing what you can borrow. Keep in mind, that any changes in your finances can affect your pre-approval status. So, after you receive your letter, avoid switching jobs, applying for new credit cards or other loans, or taking out large sums of money from your savings.
How It Helps You Determine Your Borrowing Power
This year, home prices are expected to rise in most places and mortgage rates are still showing some volatility. So, since affordability is still tight, it’s a good idea to talk to a lender about your home loan options and how today’s changing mortgage rates will impact your future monthly payment.
The pre-approval process is the perfect time for that. Because it determines the maximum amount you can borrow, pre-approval also helps you figure out your budget. You should use this information to tailor your home search to what you’re actually comfortable with as far as a monthly mortgage payment. That way, you don’t fall in love with a house that’s out of your comfort zone.
How It Helps You Stand Out
Once you find a home you want to put an offer on, pre-approval has another big perk. It not only makes your offer stronger, it shows sellers you’ve already undergone a credit and financial check.
When a seller sees you as a serious buyer, they may be more attracted to your offer because it seems more likely to go through. As Greg McBride, Chief Financial Analyst at Bankrate, says:
“Preapproval carries more weight because it means lenders have actually done more than a cursory review of your credit and your finances, but have instead reviewed your pay stubs, tax returns and bank statements. A preapproval means you’ve cleared the hurdles necessary to be approved for a mortgage up to a certain dollar amount.”
How a Realtor Can Help You with Mortgage Pre-Approval
1. Expert Guidance
We can provide you with valuable insights into the mortgage pre-approval process, helping you understand the necessary documentation and requirements.
2. Recommendations for Lenders
We often have established relationships with trusted lenders and can recommend reputable professionals who can assist you with the pre-approval process.
3. Market Knowledge
With a deep understanding of the local real estate market, we can help you gauge how much you should be looking to borrow based on current market conditions.
4. Negotiation Support
Once you are pre-approved, we can assist you in crafting a competitive offer, leveraging your pre-approval status to strengthen your position against other buyers.
5. Ongoing Support
We will continue to support you throughout the buying process, ensuring that you remain informed about your financing options and any changes in the market that may affect your purchase.
Bottom Line
If you're committed to purchasing a home, it's crucial to have both a reliable lender and an experienced realtor. A mortgage pre-approval is essential as it defines your borrowing potential and strengthens your position as a buyer. Working with a proficient realtor like us provides invaluable insights and support, helping you navigate the real estate market and make informed decisions. Partner with us and a trustworthy lender to make your homeownership dreams a reality.
Comments