Buying a house soon? Here’s why you should get pre-approved first

There are a lot of life circumstances that dictate the purchase of a new home. Upsizing, downsizing, upgrading, downgrading, buying your first home, changing neighborhoods, the list goes on. Almost all home purchases have one thing in common: unless you have the money to buy the house in cash, you will need to borrow a mortgage to complete the purchase. One important factor often overlooked by excited house hunters is the timing of the mortgage process.

Here’s what I mean: when you apply for a mortgage, an important document you’ll receive at some point in the process is a pre-approval letter. Essentially, it’s the bank saying that you, the buyer, can borrow the money you need to buy the house (barring any unforeseen circumstances). But why is this so important?

Here’s how it works: when you and your agent submit an offer on a house, the listing agent (the real estate agent representing the sellers in the deal) takes your offer to the property owners and presents it to them. If they accept your offer, the status of the house changes from “for sale” to “under contract.” During this time, the sellers will not entertain other home offers. That downtime can cost them a lot of money, as other buyers will make offers on other houses instead of theirs. For that reason, the sellers will prefer an offer from someone already pre-approved. They want to go into this transaction feeling confident the buyer can close the deal, and pre-approval gives them peace of mind. With that being said, here are three reasons pre-approval is so important:

1. Pre-Approval Helps Eliminate Surprises Later in the Process

Imagine spending months planning to buy a house: researching neighborhoods, finding the best schools, making a list of homes you like, and preparing to tour them… all to find out you can’t borrow money to buy a house in the first place. Most often, the obvious cause of this is bad credit. The absolute minimum credit score to obtain a mortgage is 580, and sometimes people are unpleasantly surprised to find out their credit isn’t strong enough. Wouldn’t you rather get that out of the way and start working on the solution before you fall in love with buying a new house? Getting pre-approved means unless your financial situation changes significantly, your credit will be good enough to complete the purchase – one less worry for later on down the road.

2. It Helps Set Realistic Expectations During Your Home Search

If you’re only approved to borrow, for example, $250,000 to purchase your new home, it’s just not the right time to look at $400,000 houses. When you buy a house, you’re making an investment in your future – it’s where your kids will grow up and go to school, it’s where you’ll wake up every morning and commute to work, it’s where you’ll entertain guests with cookouts and Super Bowl parties. Planning your future around purchasing a home you can’t afford is a recipe for heartbreak every time. One of the best ways to be realistic with yourself and avoid having too lofty ideas for your next home is to see your pre-approval amount. That will help dictate the budget you use in your home search, establishing your frame of mind before seeing what’s on the market at any price point.

3. It Puts You in Control While You Search

Getting pre-approved before you begin your home search will really put you in the driver’s seat when it comes time to buy a house. If you go and tour a house and decide you absolutely love it, having the pre-approval letter, which shows you can borrow enough money to buy the house puts you in a real position to be competitive with an offer that same day. On the other hand, if you went and toured a house and fell in love and then started the pre-approval process, there are absolutely no guarantees the house will still be on the market by the time you’ve been approved (ask anyone who tried to buy a house over the last couple years about how quickly the market can move). The process isn’t very long, but every minute counts when you’re trying to buy a house in a competitive market. You can shop ‘til you drop with peace of mind knowing your pre-approval letter puts you in the position to make an offer right away!

Spring is just around the corner, and with that comes real estate’s busiest time of year. Every year, new people enter the housing market as buyers, and the lack of housing inventory in some markets can mean competition for buyers. If it’s your goal to become a homeowner this year, trust me and cross off pre-approval from your list before you start your search – you might end up thanking me later.

Paul Bernd is a local REALTOR® from ERA Valley Realty in Woodstock, Virginia. If you have any questions about the real estate market, you can find him on social media @paulberndrealtor, call him at (540) 481-4825, or visit his website at www.PaulBernd.com.