The Essential Homebuying Step You Can't Afford to Miss: Pre-Approval

When it comes to buying a home, there’s a crucial step many people don’t know much about: pre-approval. Here’s what you need to know about it and why it’s so vital in today’s housing market.

What Is Pre-Approval?

Pre-approval is like getting a green light from a lender, indicating how much they’re willing to lend you for a home. To determine this amount, lenders review your financial history. According to Realtor.com, here are some of the documents they might request:

• 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)
• A two-year record of your living history

Once completed, you’ll receive a pre-approval letter showing how much you can borrow. However, keep in mind that changes in your finances—like switching jobs, opening new credit accounts, or withdrawing large sums of money—can impact your pre-approval status.

How Pre-Approval Determines Your Borrowing Power

With home prices expected to rise and mortgage rates fluctuating, affordability remains a challenge for many buyers. Talking to a lender during the pre-approval process helps you understand your loan options and how today’s rates will affect your monthly payments.

Pre-approval not only determines the maximum amount you can borrow, but it also helps you define a realistic budget. This ensures your home search focuses on properties within your financial comfort zone, avoiding the heartbreak of falling in love with a home beyond your reach.

How Pre-Approval Strengthens Your Offer

When you’re ready to make an offer on a home, pre-approval gives you a significant advantage. It shows sellers you’re a serious buyer who has already passed a financial review.

This credibility can make your offer stand out, as sellers are more likely to choose a buyer with pre-approval, knowing the transaction is less likely to fall through. As Greg McBride, Chief Financial Analyst at Bankrate, explains:

"Pre-approval carries more weight because it means lenders have gone beyond a basic review of your credit. They’ve thoroughly examined your pay stubs, tax returns, and bank statements. A pre-approval demonstrates that you’ve cleared the necessary hurdles to secure a mortgage up to a specific amount."

Bottom Line

If you’re gearing up to buy a home, securing a mortgage pre-approval should be at the top of your to-do list. It not only helps you understand your borrowing potential but also positions you to make a competitive offer when you find the perfect home. Reach out to a trusted lender today to get started!