Are Loan Pre-Approvals Necessary?
If you’re planning to buy a home this year, you might have heard that loan pre-approval is a necessary step to take before starting out on your journey. To better understand why, it’s important to know what pre-approval is. Freddie Mac defines the process like this:
“A pre-approval is an indication from your lender that they are willing to lend you a certain amount of money to buy your future home. The lender you work with will provide you with a pre-approval letter, which is an official document that states the maximum amount they are willing to lend you, . . .”
Simply put, a preapproval is an estimate of the amount you'll be able to borrow from a lender and the interest rate you'll be offered. It helps you understand your true price range and how much money you can borrow.
Additionally, having a pre-approval in hand can make the buying process smoother and faster, as you have already secured financing before finding your dream home. That can make it easier when you set out to search for homes. It shows sellers that you’re a serious buyer.
Paul Centopani, Editor for the Mortgage Reports, explains:
“. . . most sellers won’t even consider an offer unless the buyer is pre-approved at the right price point. Sellers and their agents want to know you’re ready and able to finance your offer amount. So you’ll want to have your pre-approval teed up as soon as you’re serious about bidding on a home you like.”
In short, while preapprovals are not mandatory, they can help you make informed decisions and streamline the buying process. Every advantage you can gain as a buyer is crucial in a market that’s constantly changing. You’re going to need guidance to navigate these waters, so it’s important to have a team of professionals, such as a real estate advisor and trusted lender, on your side. They’ll help make sure you’re ready to put your best foot forward.