What is home loan pre-approval? Though many potential home buyers are familiar with the term pre-approval, many are ashamed to admit that they are clueless as to what it really means. This article seeks to shed some light on this important step in the home buying process as well as give you some basic definitions and tips as you move forward towards owning your own home. In addition, I will cover the basics of using the pre-approval process in getting a bad credit home loan.
When people go into a bank or a mortgage broker looking to achieve a pre-approval letter to purchase a home, they will be subject to some intense scrutiny. Basically, the lender will ask to look not only at your credit report, but also all of your financial and income records for the past several years. This lender, who is about to give you a lot of money in order to purchase a new home, will need to take a deep look into your ability to pay each month in order to assess the level of risk that you will present.
Before You Go
Since the purpose of getting pre-approval is to show sellers that you are both willing and able to buy their home, you will want to make sure that you are ready for the challenge. This means that before you even set foot into a mortgage broker's office or call one on the phone, that you consider how much money you can comfortably afford each month in housing costs. Utilize free internet tools such as home loan calculators in order to have a clear picture of what you can afford each month. This will prepare you so you are not disappointed once the process starts.
Getting Your Pre-Approval
There are several documents that you will need ready when you go to a pre-approval meeting. This includes:
A lending application with a statement of goals (both financial and personal)
A purchase agreement for the home you presently own (if applicable)
Your most recent tax returns
A detailed list of monthly household expenses
Those with bad credit will also be responsible for explaining why their credit is in the position it is and will also need to furnish bankruptcy documents if this was a factor in your poor credit score.
Once all of these documents have been submitted and reviewed by a lender, they will get back to you with the details of your preapproval. This will include a list of all the appropriate numbers that apply to your home purchase. You will be told home much they will loan you, the rate of interest they will charge, the term of the loan, as well as the down payment they require.
Special Considerations for Bad Credit Loans
Those with bad credit will be subject to the same scrutiny as everyone else with the additional assessment of their current financial abilities as they relate to past mistakes. You will often have to account for the conditions of your bad credit and explain how you plan to remedy these problems in the future in order to get your bad credit home loan. Be prepared to incur a much higher interest rate than what you see advertised because of this circumstance.
Getting the Home You Want
From start to finish, getting bad credit home loan pre-approval will generally take 60-90 days. Afterwards, you will be given a letter to furnish to sellers with a statement that you can afford any offer that you put forth. Through this method, you are able to walk into the home buying process with a virtual blank check, ready to get the home you want.