If you’re thinking about jumping into the real estate market this summer, the Washington, DC; Virginia; and Maryland regions are definitely heating up! In a competitive landscape, buyers need to do everything possible to make their offers stand out and to help ensure they snag their dream homes. For people seeking conventional financing, that means getting preapproved before shopping around. Not all mortgage lenders are the right fit for every person, though, so the first step for any prospective home buyer should always be finding the right real estate agent.
In this blog, we explore why it’s crucial to talk to a great Realtor first, what “preapproval” actually means, and the four main advantages of going through this process.
Why Speak to a Realtor First?
When you work with an experienced, knowledgeable Realtor, he or she can assess your personality, financial situation, and home needs and suggest a loan officer with a program that fits your specific situation.
There’s no shortage of mortgage companies, but not all companies are a perfect fit for every prospective home buyer. Also, not every mortgage company offers every available program. It’s essential, therefore, to talk to someone experienced and versed in these financial matters before seeking out a lender and risking working with someone who might not ultimately be a good fit for your needs. An experienced Realtor who has developed relationships with a wide range of lenders can sit down with you, discuss your situation, and suggest the right financial partner and program for this important decision.
What Is Preapproval?
In a nutshell, “preapproval” is the process of going to a mortgage lender and providing your initial financial information. From that information, the lender makes a preliminary decision about whether you’d qualify for a mortgage. It isn’t a final decision on the part of the mortgage lender—for that, the loan must go through final underwriting—but it gives you a great sense of whether a lender would work with you and, if so, how much house you’d be eligible to purchase. Again, taking the advice of your seasoned Realtor can help ensure your lender offers you the most favorable program for your situation.
4 Reasons to Get Preapproved Early
Buying real estate can seem confusing and intimidating, especially for first-time home buyers, and that’s why enlisting the help of an experienced Realtor is key. In a competitive sellers’ market, preapproval from a lender your Realtor suggests should be one of your first priorities. (Pro tip: NOVA, Maryland, and DC are sellers’ markets right now!) Here are the top four reasons to talk to a mortgage lender early on in the home-buying process:
- In This Market, Buyers Need to Be Ready
Experts were predicting big things for real estate in summer 2020, and now buyers and sellers are seeing those predictions come true. With inventory getting snatched up as soon as it hits the market (and sometimes even before it’s officially listed), buyers need to be ready to act when they see homes they like. Competition can drive multiple offers on every home, and preapproval helps ensure you aren’t stuck getting your financial ducks in a row while someone else is closing on that perfect house. - Preapproval Makes Your Offer More Attractive
When a home gets multiple offers, the seller can essentially choose what offer they want to pick. Obviously, that typically goes to the highest bidder, but other factors come into play as well. Preapproval is a signal to any seller that a valid mortgage company has deemed that buyer eligible for a loan sufficient to purchase the home. It also means at least some of the loan process is already done, shortening the amount of time between offer and close. That can save the seller on carrying costs and make an offer highly attractive. All other factors being equal, a seller is very likely going to choose an offer with preapproval over one that doesn’t have this. - Preapproval Lets the Seller Know You’re Serious
Sellers don’t want to waste their time on offers that aren’t reasonable or serious. If a seller picks an offer that then falls through because the buyer couldn’t secure financing, that affects both how long the home sits on the market and the perception of that home by potential buyers. Typically, the longer a home sits, the more it negatively impacts the final price. (Especially in incredibly competitive markets, buyers assume something must be wrong with the property if it’s available for too long. Some might even assume the home failed on inspection and avoid putting in an offer.) The seller, therefore, has a very real financial incentive to only pick offers that seem serious, and preapproval is one considerable hallmark of a serious offer.Because preapproval also does some of the loan work before you even make an offer, a letter of preapproval lets a home seller know you’re ready to buy now. You’re not just testing the market or seeing what happens if you put in an offer; you’re legitimately ready to buy that home.
- Preapproval Gives You a Realistic Budget
One of the biggest ways preapproval helps potential buyers is by giving them a budget. Preapproval will not just say you will or will not get a loan. It will have a number that you’re preapproved up to. This ensures buyers are only looking at homes that are truly within budget, which can save those buyers a lot of heartache. Not getting preapproval leads many to start a home search, only to fall in love with a property that ends up being financially out of reach.
After securing the right Realtor, preapproval is the first step in the exciting journey toward homeownership. If you’re thinking about buying in this current climate, though, go in knowing it often takes persistence, planning, and a bit of good luck. (And, of course, a savvy, experienced real estate agent who knows the market well is a must!) If you’re ready to start searching for your dream home, talk to Ray today!
