Last month we spoke about how to use Gift Funds when purchasing a home.  A large percentage of buyers especially in California use this method to beef up their down payment and purchase more home. 

One of the first steps in your homebuying journey is getting pre-approved by a lender. To understand why it’s such an important step, benefitting buyer and seller, you need to understand what pre-approval is and what it does for you. 

Business Insider explains:

“In a preapproval [sic], the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be.”

Basically, pre-approval gives you critical information about the homebuying process that’ll help you understand your options and what you may be able to borrow.  It can take days to a week or two, but that is time well spent.    That can make it easier when you set out to search for homes because you’ll know your overall numbers. And with higher mortgage rates impacting affordability for many buyers today, a solid understanding of your numbers is even more important and gives you confidence about making an offer.

How does preapproval work? As part of the pre-approval process, a lender will look at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you understand how much money you can borrow.  This process takes an application and lender who has vetted your data, run a credit report, verified employment, assets, and gives a written preapproval letter to  help you convince the seller of your ability to purchase.  It shows you are a serious buyer.  A recent article from Forbes notes:

“From the seller’s perspective, a preapproval [sic] letter from a reputable local lender often can make the difference between accepting and rejecting an offer.”

This goes to show, even though you may not face the intense bidding wars you saw if you tried to buy during the pandemic, pre-approval is still an important part of making a strong offer. Some buyers who have not gotten their offer accepted will ask why?  One reason can be lack of a Preapproval!! In fact, Christy Bieber, Personal Finance Writer at The Motley Fool explains it may be the most important part of making an offer:

“Pre-approval maximizes the chances you’ll be able to actually close the deal – and sellers want to see that”  vs, a prequalify letter which means that you filled out an application and nothing has been verified.  Believe me the seller and the Realtor knows the difference.

The fact that a pre-approval gives you a better chance of getting your offer accepted is undoubtedly the most important reason to complete this step . . .”

Bottom line – This adds confidence in your ability to purchase and gives confidence to the seller that you are solid and serious.  Ask your Realtor for a recommendation to a good, local lender.