Spring has arrived, and with it comes the peak season in real estate. More buyers are actively searching for homes, leading to increased competition. To improve your chances in this market, one crucial step is to ensure you get pre-approved for a mortgage.

Some buyers believe they should hold off on talking to a lender until they've found the perfect home. However, given how quickly homes can sell today, that approach could backfire. It's safer to get pre-approved before you begin your search – it gives you an edge in this competitive market.

Here’s what you should keep in mind about this initial stage of the buying process.

What Does Pre-Approval Mean?

Pre-approval helps you understand the amount a lender is ready to lend you for a home loan. The lender begins by reviewing your financial background. Here are a few factors that can influence that amount, as noted by Yahoo Finance:

• Your debt-to-income (DTI) ratio: is simply the amount of money you owe compared to what you earn. Typically, the lower your DTI, the more you can borrow.

• Your income and job situation: They just want to make sure you have a steady paycheck so they know you can handle the loan payments.

• Your credit score: The higher it is, the more you might be able to borrow.

Once they complete the review, you'll receive a pre-approval letter outlining how much you can borrow. This brings a sense of reassurance, making you feel more confident about securing a home loan. Plus, it can help expedite the process toward closing day since the lender already has much of your information.

It Helps You Determine Your Spending Limit

Spring can be a tough time for homebuyers, with a lot of competition around. It’s easy to get caught up in the excitement, but it’s crucial to stick to your budget. You don’t want to fall in love with a property and end up spending more than you can afford. As Freddie Mac highlights, keeping a clear budget in mind is essential.

““​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.”
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— Freddie Mac

Now is the perfect time to focus on your finances. Make sure to include all the costs of homeownership, such as property taxes, insurance, and possibly homeowner's association fees. This way, you'll have a clear idea of what you can comfortably afford.

Work with your agent to customize your home search to fit your budget. This way, you can avoid falling for a house that’s beyond what you can comfortably afford.

It Makes Your Offer More Competitive in a Busy Market

Spring buyers aren't just in a race to find homes; they also need to grab the seller's attention. A pre-approval letter can give you an edge by demonstrating that you’ve already completed a financial check. As Zillow puts it:

““Having a pre-approval letter handy while you’re shopping for a home can also help you act quickly once you’ve found a home you love. The letter shows potential sellers that you’re a serious buyer who has the financial means to close on the home. In a competitive market, an offer with a pre-approval letter attached will stand out among other offers that don’t include one — increasing the chances of your offer being accepted.”
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— Zillow

When sellers have several offers to consider, your offer might stand out just because you've already completed this step.

And here’s one last piece of advice. Once you get your letter, try to avoid switching jobs, applying for new credit cards or loans, co-signing for any loans, or moving money in or out of your savings. Changes to your financial situation can impact your pre-approval status.

Bottom Line

If you're considering buying a home this spring, the first step should be getting pre-approved. This will give you a clear idea of your budget, demonstrate to sellers that you're serious, and prevent you from getting attached to a home that might be too expensive. Reach out to a lender to get the process underway.

What steps do you have in mind to differentiate yourself in this competitive market? Let’s discuss how you can ensure you’re completely prepared to make a purchase.