Thinking about diving into the real estate market now that more homes are for sale and mortgage rates are cooling off? It could be the perfect moment to make your move! But before you get too excited about house hunting, there's one crucial step you need to take: getting pre-approved for a mortgage.
Pre-approval is when a lender checks out your financial situation—your W-2s, tax returns, credit score, and bank statements—to figure out what they’re willing to lend you. After that, you’ll get a pre-approval letter that gives you the green light for a specific loan amount. Now, let’s break down why this is a total game-changer in today’s market.
Even though home affordability is showing signs of improvement, it’s still pretty tight out there. That’s why it’s smart to talk to a lender early on, so you know exactly where you stand with loan options and how those mortgage rates will affect your monthly payments. Pre-approval gives you a real sense of what’s in your financial ballpark. As Investopedia puts it:
"Consulting with a lender and obtaining a pre-approval letter allows you to discuss loan options and budgeting with the lender; this step can clarify your total house-hunting budget and the monthly mortgage payment you can afford."
Basically, this is where you figure out what you’re comfortable spending and how that fits into your budget. And while mortgage rates have dropped slightly, giving you a little more flexibility, it’s still super important not to overextend yourself. CNET says it best:
"In many cases, a lender may preapprove you for more than you need to spend on a home. And while it can be tempting to look at houses outside your budget, it won’t help you in the long run. Before you start touring homes, figure out how much you can realistically afford and stick to your budget."
So, while it’s fun to dream big, pre-approval helps keep those dreams realistic and within reach.
Once you’ve found a home that ticks all your boxes, pre-approval gives you another huge advantage—it makes your offer more appealing to sellers. It shows them you’ve already gone through the financial hurdles, so they know you’re serious and not just window shopping. Sellers want to know your offer is solid, and having that pre-approval letter can be a game changer. Greg McBride, Chief Financial Analyst at Bankrate, explains:
"Preapproval carries more weight because it means lenders have actually done more than a cursory review of your credit and your finances, but have instead reviewed your pay stubs, tax returns and bank statements. A preapproval means you’ve cleared the hurdles necessary to be approved for a mortgage up to a certain dollar amount."
With mortgage rates creeping downward, more buyers are going to get back into the market, and competition could heat up fast, especially in those hot neighborhoods. Being pre-approved puts you ahead of the game, making sure you’ve got the best chance to lock in the home of your dreams.
If buying a home is on your radar, do yourself a favor and get pre-approved right away. It’ll not only help you get a clearer picture of what you can afford, but it’ll also show sellers you’re a serious buyer who’s ready to roll. And that could make all the difference in today’s market!