The real estate market has been on a tear for the past few months. The national median home price in September rose more than 13% from the year before, according to recent data from Zillow, and more than 1 in 5 homes in the U.S. are selling above asking price.
While the fundamentals of homebuying, like having good credit and a solid down payment, continue to be king in this competitive market, having a strong preapproval letter from a lender will also make your bid much more appealing to sellers, real estate professionals tell Grow.
"Do as much pre-work as you possibly can," says Debra Hall, a real estate agent in Northern Virginia.
That includes, she says, getting the right kind of letter from the lender. Here's how to make sure you're ready to compete in a hot market.
Know the difference between preapproval and prequalification, Hall says. The former is a thorough vetting of a potential buyer's financial profile. The latter is a less rigorous assessment of sellers a buyer can afford based on self-reported information.
Prequalification is akin to credit card offers that come in the mail, she says.
"A preapproval letter is when you have reached out to a lender," Hall says. "They've checked your credit. They've verified your employment. They've looked at your bank accounts, and they deem you truly qualified to buy a house."
It shows sellers that the buyer has put in the work to be a serious contender.
Have the documents in hand before you start looking at homes, Hall says. It not only accelerates a potential deal but also prevents eager buyers from losing valuable time when they want to make an offer.
"I've seen many people lose because they start looking, they found a house they love, and then they're not ready," she says. "They then have to go to the lender and get approved. By the time by the time they get that — even two days later — the house has already gone."
Video by Richard Washington
In addition to getting the right kind of preapproval letter, it's also important to make sure that lenders include as much detail as they can in the document, says Leigh Marcus, a real estate agent in Chicago.
A lender will check credit, review financial statements, and verify funds, but they might not explicitly state all that vetting in the preapproval letter unless you expressly ask them to do so, he says.
"If you shared that [information] with the lender, they can then say on the preapproval that they've done those things," Marcus says. "These are all small things that can just make your preapproval even stronger."
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