The One Move You Have to Make Before Starting Your Home Search

Key points

• At a time when housing inventory is low, it’s important to embark on a home search in an efficient way.
• Having a mortgage pre-approval letter will let you know much you’re able to borrow, which could help you narrow down your choices.

So far, 2023 is proving to be a pretty difficult year to buy a home. Not only are mortgage rates up, but the real estate market lacks inventory in a very serious way. And that means you might struggle to find a home that meets the right requirements.

As of the end of March, there was only a 2.6-month supply of homes on the housing market nationally, according to the National Association of Realtors. A more “normal” housing market, however, could easily have a six-month supply.

Given the state of the housing market today, the one trap you don’t want to fall into is searching for a home and finding the perfect one — only to realize it’s out of your budget. To avoid landing in that situation, there’s one key step you have to take before starting your home search.

Get pre-approved for a mortgage

Many people think that once they get pre-approved for a mortgage, they’re all set as far as financing a home goes. It’s important to understand that a mortgage pre-approval letter is not the same thing as a mortgage approval itself. But that doesn’t mean a pre-approval letter isn’t worth getting. 

First of all, in a housing market with limited inventory, there can be a lot of competition. If you go to make an offer on a home with a mortgage pre-approval letter in hand, it might give you an edge over competing buyers who haven’t taken that step.

Just as importantly, in the course of giving out a pre-approval letter, a mortgage lender collects some basic information about your finances (including your income) and uses it to determine what sum of money you’re eligible to borrow in theory. And that’s a really important number to have when you’re looking for homes to buy.

Let’s say you don’t get pre-approved for a mortgage and spend weeks looking at homes in the $550,000 range. If you only have $50,000 to put down on a home, it means you’d need a $500,000 mortgage to make a purchase happen. 

Now, let’s say you get pre-approved for a mortgage and realize you’re only approved to borrow $425,000. That may not be the news you want to hear, but at least that way, you can avoid wasting your time looking at more expensive homes. 

A step worth taking

Getting pre-approved for a mortgage can be a quick process. It’s one you can often do over the phone. 

In today’s market, it’s worth having a pre-approval letter so you can present yourself as a serious buyer. Just as importantly, knowing what sum of money you’re eligible to borrow could prevent a scenario where you waste time looking at homes that are out of your price range.

Buying a home can be an emotional process. And it’s common for house hunters to fall in love with a home only to have their hearts broken when their offers aren’t accepted. If you get pre-approved for a mortgage, you might save yourself not only time, but heartache.