Why is Financing Pre-Approval an Essential First Step for the Savvy Home Buyer?
A pre-approval, issued by a lender or bank, is used by home buyers who need financing. Why should pre-approval be one of a Buyer’s first steps?
First, Lender pre-approvals advise Buyers of their maximum purchase price point based on cursory review of your income and debt. With a pre-approval, a Buyer can target an affordable price range focusing their search, saving time, and informing the entire search. A pre-approval also allows a Buyer to search in a range in which they’ll likely get sufficient financing to consummate the purchase. If a more modest monthly payment is preferred in lieu of that associated with your maximum pre-approval, a Realtor can adjust search tools to identify appropriately priced homes to accomplish this.
To get pre-approved, a Buyer invests 15-20 minutes to complete an application on a Lender’s secure website. Pre-approval is free and is not a commitment by the Buyer nor the Lender–it is an estimate. Most Lender websites allow Buyers to save a partially completed application and finish it later. The Lender can only view an application once submitted. When multiple incomes are to be used, Buyers submit data in one application. Buyers normally receive their Lender’s preapproval letter by email within 24 hours. It is valid for 90-120 days and can be renewed by phone. With a Lender’s pre-approval which uses more precise algorithms than DIY tools, your search will be significantly enriched.
[Once a Buyer’s “offer” on a home is “ratified” (Buyer and Seller sign), the Buyer submits required documentation to the Lender to get their loan “approved”. Don’t confuse approval with pre-approval.]
The second reason to get pre-approved “early on” is that a Buyer cannot offer on a home without attaching their Lender’s pre-approval letter.
Sellers want initial assurances that a Buyer can secure adequate financing and also know what Lender is involved for reputational reasons. If multiple offers are received, a Seller will compare them to inform their selection. When an offer is ratified, the Seller removes the home from the market while the Buyer secures financing approval. This presents a certain risk to the Seller who must wait a specified number of days for a Lender’s loan decision. A Seller considers this period lost marketing time too so they want to make as informed a decision about a Buyer as possible. There are many ways to enhance your overall offer to a Seller apart from price to augment its attractiveness. Contact me for suggestions.
In a Seller’s market such as that in Northern Virginia now, homes are in short supply and the better ones literally fly off the market. Multiple Buyers compete for the same home and efficient use of time quickly becomes a huge factor. An offer on a home in a great location targeted for months by proactive Buyers may get accepted in a matter of a couple days or even hours so a Buyer and his/her Agent need to move with deliberate speed. Desirable homes just entering the market enjoy an immediate flurry of Buyer interest and visits. Improve your chances of getting what you want when opportunity knocks by not incurring unnecessary delays and having prerequisite steps accomplished. Getting pre-approved by a Lender of your choice is THE essential first step for the savvy Buyer and particularly in a hot market.
Authored by Alan Davis of Metro Premier Homes in July 2019
Licensed Realtor and Accredited Military Relocation Professional Serving Northern Virginia
Cell: (571) 229 – 6821