Many factors go into purchasing a home. Potential homeowners must identify the features they want in their homes and the locations most desirable to them. Considerations such as commuting time, nearby shopping centers, and local schools also play a role when seeking the right home.
In the current seller’s market, where homes are selling relatively quickly, having a pre-approved home loan improves the chances that sellers will accept a homebuyer’s offer [1]. Potential homeowners who aren’t pre-approved for mortgages may miss out, as sellers often have other offers already approved for financing [1].
Here are the top benefits of obtaining pre-approval for home loans before starting a home search this fall.
Be More Attractive to Sellers
Obtaining pre-approval for home loans attracts sellers who want to close quickly. Often, sellers prefer a buyer who already has their financing source lined up over someone who has not yet gone through the loan process [1].
Getting a pre-approved home loan tells the seller the homebuyer is ready to close as soon as they are. The seller won’t need to wait for a lengthy loan process; the homebuyer has already gone through the required hoops and proven they are financially qualified to purchase the home [1].
Obtain Better Assistance From Realtors
Realtors want to work with someone who already has their financing in line and needs help locating a home that fits their needs. While realtors will certainly help someone beginning the home buying process, a pre-approval for a home loan gives them confidence in knowing the potential buyer is ready to purchase a home when the right one is available.
Realtors can provide tailored assistance to someone who already knows what they can afford [2]. Often, realtors are the first to know when a home goes up for sale, and they can quickly notify the homebuyer when a home meets their purchase criteria.
Find An Affordable Home
Sometimes homebuyers aren’t sure how much they can afford for a home. Many factors outside the home’s price go into calculating a monthly mortgage payment. These factors include interest rates, length of the loan, closing costs, and private mortgage insurance (PMI).
Interest rates, closing costs, and PMI can drastically alter the monthly mortgage payment a homeowner is expecting to pay. In some cases, the monthly mortgage payment may be several hundred dollars or more per month than their expectations.
Obtaining pre-approval for home loans helps potential homebuyers to understand what they can afford [1]. Using this knowledge, they can tailor their search to include only properties they qualify for under their pre-approved home loan [1].
Compete Effectively in the Market
There are more buyers than sellers in the current real estate market [1]. More buyers mean that a home may receive several offers in a short period. As a result, those who have already lined up their financing are more likely to snatch up a house than those who haven’t yet been pre-approved.
Sellers who receive several offers have the luxury of choosing between them to determine which best aligns with their expectations. While a buyer who isn’t yet pre-approved for home loans can offer a higher price while waiting for the loan process to finalize, they can’t guarantee their loan will go through. Sellers seeking safety rather than a higher return will likely choose the buyer with a pre-approval instead.
Reduce The Closing Time
Most homes require up to 50 days to fully close [1]. Home appraisals and inspections account for part of that time, but so does the lending process [1]. Home buyers seeking to minimize closing time can do so by obtaining pre-approval for their home loan.
With a pre-approved home loan, the closing process gets a jump start. Rather than negotiating with lenders, the parties involved can skip right to the home inspection and appraisal process. Reduced closing time allows the homeowner to move into their new pad much quicker.
Lock In Interest Rates
Since the beginning of the year, interest rates have consistently increased as the government seeks to rein in inflation. So far, the federal government has raised interest rates four times this year [4]. Economists expect future increases in interest rates before year-end [4].
Individuals with little room in their budget to account for higher mortgage interest rates can seek a pre-approved home loan. Most lenders allow borrowers to lock in their interest rates for up to 60 days, free of charge [5]. Homeowners seeking to lock in their rates for a more extended period can pay an additional fee, typically between 0.25% to 1% of the home’s value, to do so [5].
Wrapping Up
Obtaining a pre-approval for a home loan can only benefit potential homebuyers in their search for a home this fall. Not only will pre-qualified homebuyers have the option to lock in interest rates on their purchase, but they’ll also benefit from a targeted home search process and an increased likelihood that sellers will accept their offer.
Anyone planning to purchase a home this fall should ensure they have their financials ready to go, so they can improve their chances of securing the home of their dreams!
This article is intended to be accurate, but the information is not guaranteed and situations vary from person to person. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional.
The article is provided by Sparkling Marketing, Inc.
Sources:
[1] 4 Reasons to Get a Mortgage Pre-Approval – Moving.com
[2] Why a Pre-Approval is Crucial to Your Home Search | Real Estate News & Insights | realtor.com®
[3] How Long Does It Take to Close on a House? (realtor.com)
[4] The Fed hiked interest rates for the fourth time this year. Here’s one easy way that can help you earn more money – MarketWatch
[5] Should I Lock In a Mortgage Rate Today? What to Consider as Rates Fluctuate – Bloomberg
