Getting pre-approved for a mortgage is the first step of the home buying process. Getting a pre-approval letter from a lender get the ball rolling in the right direction.

Here’s why:

First, you need to know how much you can borrow. Knowing how much you can afford narrows down online home searching to suitable properties, thus no time is wasted considering homes that are not within your budget. (Pre-approvals also help prevent disappointment caused by falling in love unaffordable homes.)

Second, the loan estimate from your lender will show how much money is required for the down payment and closing costs. You may need more time to save up money, liquidate other assets or seek mortgage gift funds from family. In any case, you will have a clear picture of what is financially required.

Finally, being pre-approved for a mortgage demonstrates that you are a serious buyer to both your real estate agent and the person selling their home.

Most real estate agents will require a pre-approval before showing homes – this is especially true at the higher end of the real estate market; sellers of luxury homes will only allow pre-screened (and verified) buyers to view their homes. This is meant to keep out “Looky Lous” and protect the seller’s privacy. What’s more, by limiting who enters their home, sellers are given extra security from potential thieves trying to case the home (like identifying security systems, locating expensive artwork or other high-value personal property).

From start (searching online) to finish (closing escrow), buying a home takes about 10 to 12 weeks. Once a home is selected an the offer is accepted, the average time to complete the escrow period on a home is 30 to 45 days (under normal market conditions). Though, well-prepared home buyers who pay cash have been known to purchase properties faster than that.

Market conditions are a major factor in how fast homes are sold. In hot markets with a lot of sales activity, buying a home may take a little longer than normal. That’s because several parties involved in the transaction get behind when business suddenly picks up. For example, a spike in home sales increases the demand for property appraisals and home inspections, yet there will be no increase in the number of appraisers and inspectors available to do the work. Lender turn-around times for loan underwriting can also slow down. If each party involved in a deal takes a day or two longer to get their work done, the entire process gets extended.

In sellers’ markets, increasing demand for homes drives up prices. Here are some of the drivers of demand:

• Economic factors – the local labor market heats up, bringing an inflow of new residents and pushing up home prices before more inventory can be built.
• Interest rates trending downward – improves home affordability, creating more buyer interest, particularly for first time home buyers who can afford bigger homes as the cost of money goes lower.
• A short-term spike in interest rates – may compel “on the fence” buyers to make a purchase if they believe the upward trend will continue. Buyers want to make a move before their purchasing power (the amount they can borrow) gets eroded.
• Low inventory – fewer homes on the market because of a lack of new construction. Prices for existing homes may go up because there are fewer units available.

A buyer’s market is characterized by declining home prices and reduced demand. Several factors may affect long-term and short-term buyer demand, like: Economic disruption – a big employer shuts down operations, laying off their workforce.

• Interest rates trending higher – the amount of money the people can borrow to buy a home is reduced because the cost of money is higher, thus reducing the total number of potential buyers in the market. Home prices drop to meet the level of demand and buyers find better deals.
• Short-term drop in interest rates – can give borrowers a temporary edge with more purchasing power before home prices can react to the recent interest rate changes.
• High inventory – a new subdivision and can create downward pressure on prices of older homes nearby, particularly if they lack highly desirable features (modern appliances, etc.)
• Natural Disasters- a recent earthquake or flooding can tank property values in the neighborhood where those disruptions occurred.

Most loan programs require a FICO score of 620 or better. Borrowers with higher credit scores represent less risk to the lender, often resulting in a lower the down payment requirement and better interest rate. Conversely, home shoppers with lower credit scores may need to bring more money to the table (or accept a higher interest rate) to offset the lender’s risk.