When buying a home, the sheer time factor involved in navigating the process can be an exercise in frustration for many people. While there are times where the motivated seller has priced their property so as to move quickly and they are paired with a buyer whose credit enables them to obtain approval fairly rapidly, this ideal scenario is rare. For most people, there is really only one way to speed up the home-buying process and that is to obtain pre-approval on the home loan.
What exactly is pre-approval?
While pre-approval may sound like a guarantee that the loan will be made, buyers should not be confused in that regard. A pre-approval of any home loan is simply a statement that there is a strong likelihood that the loan will be approved, and thus serves as a strong indication to the home seller that they are dealing with a serious buyer who has the means to complete the purchase. That fact alone can often make the difference between a long drawn-out period of negotiation and a quickly realized offer to purchase and acceptance.
So how does it work?
There is, of course, a process involved in obtaining pre-approval for any home loan, so any buyer who seeks one should be prepared to provide a number of important disclosures to the lender. Banks generally require between 3 and 6 months of pay statements, or equivalent bank documentation indicating that you have the income you state that you have. In addition, you will also need to provide documentation as to the nature and extent of your expenses so that the lender can evaluate your ability to repay the loan that you are seeking.
Of course, a credit check will be performed so that the lender can identify other instances of credit attached to your name, while also checking to ensure that you are not on any blacklist. The lender will pull a copy of your credit reports and on the basis of all of that information, the lender will make the decision as to how credit worthy you appear to be, and choose to issue pre-approval if you are found to be capable of repayment. Obviously, your best chances of being provided with pre-approval are in cases where you have both a high income and a strong credit record. Those two factors have an additional benefit as well, and it is one that is often overlooked by borrowers: good credit and higher income levels often place you in a position of strength when you attempt to negotiate the best interest rates for your loan.
How can you improve your chances of being approved?
Unfortunately, there are few things that you can do on the spur of the moment to improve your chances of being pre-approved for any mortgage loan. In instances of bad credit or low income, the process for improving your chances will take years to complete. For that reason, every individual should pay close attention to the decisions that affect personal credit from an early age, so that good credit will be available later in life when it is needed.
January 31, 2017