Why Pre-Approval Is Even More Important This Year

Heading towards homeownership? If that’s the case, you’ve likely come across the term “pre-approval.” Let’s delve into its meaning and significance, especially if you’re aiming to purchase a home in the year 2024.

What Pre-Approval Is

In the process of buying a home, your financial situation will be assessed by your lender to determine the loan amount they are willing to offer. According to Investopedia, this evaluation encompasses elements such as your W-2, tax returns, credit score, bank statements, and other relevant factors. Subsequently, you’ll receive a pre-approval letter, providing clarity on the amount you can borrow. Freddie Mac explains it like this:

“A pre-approval is an indication from your lender that they are willing to lend you a certain amount of money to buy your future home. . . . Keep in mind that the loan amount in the pre-approval letter is the lender’s maximum offer. Ultimately, you should only borrow an amount you are comfortable repaying.”

The final aspect mentioned is of particular significance. Despite an improvement in home affordability, the market remains competitive. Therefore, obtaining a clear understanding of your borrowing capacity is crucial for comprehending the financial aspect. It doesn’t imply that you must borrow the entire amount; rather, it informs you about the maximum loan offered by that particular lender.

This preparation enables you to make informed decisions regarding your financial situation. Consequently, you can customize your home search to align with your budget comfort and respond promptly when you come across a home you genuinely adore.

Why Pre-Approval Is So Important in 2024

If you’re considering purchasing a home in the current year, having a reliable lender becomes even more crucial for prioritizing your goals.

While there’s an increase in the number of homes listed for sale, the overall inventory remains below the typical levels. Simultaneously, the recent decline in mortgage rates compared to the previous year is enticing more buyers to reenter the market. This creates a competitive dynamic for you, with demand surpassing the available supply.

As a result, you’re likely to face heightened competition from other buyers, as more individuals who were previously hesitant due to higher mortgage rates are now reengaging. However, pre-approval can be advantageous in this scenario as well.

Securing pre-approval signals to sellers that you are a serious contender, having already undergone a thorough credit and financial evaluation.  As Greg McBride, Chief Financial Analyst at Bankrate, says:

“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.”

Sellers love that because that makes it more likely the sale will move forward without unexpected delays or issues. And if you may be competing with another buyer to land your dream home, why wouldn’t you do this to help stack the deck in your favor?

Bottom Line

If you’re looking to buy a home in 2024, know that getting pre-approved is going to be a key piece of the puzzle. With lower mortgage rates bringing more buyers back into the market, this can help you make a strong offer that stands out from the crowd.