When people are looking to buy homes, many times, the first thing they do is search online for appealing properties (instead of getting a pre-approval letter). The would-be buyer looks at beautiful homes and calls up a real estate agent. They go to the house, they put in an offer, and the deal falls apart.
More often than not, the deal fell through due to financing. The price range exceeded what the bank was willing to lend the now-saddened prospective homeowner.
Pre-approval letters solve this disheartening scenario. With a pre-approval letter, the bank is committing to lend the buyer a certain amount of money, assuming the responses on the application were truthful.
Here are three reasons why you should look at securing a pre-approval before you start looking at homes!
A Pre-approval Means You Know Your Price Limit
By having a bank look at your financials and issue you this letter, you will know exactly how much home you can afford. This knowledge means that you will be looking at homes for which you are very likely to obtain financing.
Without this letter, you would be guessing at how much a financial institution would be willing to lend you, and many times, people overestimate this amount because they don’t factor in all their current and estimated future expenses.
By becoming pre-approved, you know how much house you can afford!
It Gives Sellers Confidence
If a seller has the choice between accepting an offer from a buyer that isn’t pre-approved or accepting an offer from someone who is, then they will almost always pick the person with the pre-approval letter. Your offer is more competitive. The reason for this is simple: the deal is more likely to close! With the second offer, the seller has confidence in the ability of the buyer to obtain financing. However, with the first buyer, the seller has no idea if the prospective buyer will be able to secure a loan or not.
Bottom line: getting pre-approved makes sellers more likely to accept your offer instead of someone else’s!
You Lock In An Interest Rate
With the pre-approval, the bank will typically guarantee an interest rate for you. Since interest rates are hovering around all-time lows, having this guarantee is critical. It means that even if interest rates go up, as long as you find a home within the lock-in timeframe (this is often between 30-90 days), you won’t pay the higher rate! You’ll pay whatever the interest rate was when the bank granted you the pre-approval.
Getting pre-approved now, while the rates are still super low, is generally the smartest thing to do. Once the summer hits, interest rates might shoot up and make your dream home significantly more expensive.
Getting A Pre-approval Has Many Benefits
With a pre-approval letter, you’ll know how much home you can afford, lock in minimal interest rates, and give sellers lots of confidence in your ability to close. Having a pre-approval letter makes your offer significantly stronger.
If you’re interested in a home within the Albany region or want to chat about pre-approvals, please feel free to contact me, and I will be happy to walk you through the process in more detail to find the home of your dreams!