Are you working towards owning a home? If you are, you might have come across the term “pre-approval.” Let’s explore what it means and why it’s crucial if you’re planning to purchase a home in 2024.
What Pre-Approval Is
During the homebuying process, your lender will assess your finances to determine the amount they’re willing to lend you. This typically involves reviewing documents such as your W-2, tax returns, credit score, bank statements, and other financial information, as stated by Investopedia.
After assessing your finances, the lender will issue you a pre-approval letter indicating the amount you can borrow. While home affordability is improving, it remains stringent. Therefore, understanding your borrowing capacity can help you grasp the financial aspects better. However, it doesn’t imply that you should borrow the entire amount; it simply informs you of the maximum amount you can borrow from that particular lender. This information allows you to make informed decisions about your finances, enabling you to tailor your home search to a budget that you’re truly comfortable with and act swiftly when you discover a home you adore.
Why Pre-Approval Is So Important in 2024
If purchasing a home this year is your goal, it’s essential to prioritize working with a reputable lender for another important reason.
Although more homes are being listed for sale, the total number of available homes remains below the usual levels. Simultaneously, the recent decrease in mortgage rates compared to last year is attracting more buyers to the market. This imbalance, with more demand than supply, creates a sort of tug-of-war for prospective buyers like you.
It means you’ll likely find you have more competition from other buyers as more and more people who were sitting on the sidelines when mortgage rates were higher decide to jump back in. But pre-approval can help with that too. Having a pre approval means 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 planning to purchase a home in 2024, understand that obtaining pre-approval will be a crucial step. With lower mortgage rates attracting more buyers to the market, this can assist you in making a compelling offer that distinguishes you from others.
