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Get Pre-Approved in 20
Minutes
PRE-APPROVAL
What Do They Mean & Why
Are They Important?
In today’s market it’s crucial to have a pre-approval letter prior to making an offer, especially with rising home prices and high buyer competition. Here’s why.
Being intentional and competitive are musts when buying a home this year. Pre-approval from a lender is the only way to know your true price range and how much money you can borrow for your loan. Just as important, being able to present a pre-approval letter shows sellers you’re a qualified buyer, something that can really help you land your dream home in an ultra-competitive market.
With limited housing inventory, there are many more buyers active in the market than there are sellers, and that’s 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. As a result, bidding wars are still common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, it’s likely you will. When a seller knows you’re qualified to buy the home, you’re in a better position to potentially win the bidding war.
FREDDIE MAC EXPLAINS:
By having a pre-approval letter from your lender, you’re telling the seller that you’re a serious buyer, and you’ve been pre-approved for a mortgage by your lender for a specific dollar amount. In a true bidding war, your offer will likely get dropped if you don’t already have one.
In order for expenses to qualify, they have to tie directly to the sale of the home and aren’t something that affects the physical property itself. Things like advertising, appraisal fees, attorney fees, title search fees, and real estate broker’s commission qualify as expenses. Hiring painters or landscapers would not qualify.
However, some home improvements can give you a potential tax benefit. If you made a big improvement in your home (such as a kitchen renovation), you can add the cost to your home’s tax basis. For example, if you had purchased your home for $300,000, then made a $10,000 improvement, your basis would be $310,000. You would then subtract this amount from the sales price to determine the capital gain.
BOTTOM LINE
In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the home buying process. Not only does being pre-approved bring clarity to your home buying budget, but it shows sellers how serious you are about purchasing a home.
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