Getting pre-approved for a home loan can be daunting for beginners. If you are absolutely clueless about the approval procedure, you might think it best to give up before you even begin. But it is worth the wait. Here’s why.
What Does Pre-approval Mean?
Pre-approval refers to the amount you can borrow from the bank to buy your next home. Generally, an applicant is required to go through a specific procedure before learning the exact number they are eligible to borrow. But getting pre-approved allows you to get a clear view of your budget. In addition to that, being pre-approved helps you put down better offers on the table for the property of your choice.
Why Get Pre-approved for a Home Loan?
Hassle-free loan procedure
Everyone knows loan processes are tiring. They demand a lot of time and energy. Sometimes, you may not hear from the bank for an entire month after applying for the loan. But as a pre-approved candidate, you can put all that trouble behind you.
Credit assessment is a huge aspect of pre-approving. The lender needs time to complete your credit appraisal to determine your eligibility. Pre-approval lets you jump the line, which allows you to get a response within 10 days of the application.
Better property search
Competitive advantage is your only weapon in a competitive market. You can get a competitive advantage either by being the first to do something or simply being better. Since it’s usually impossible to be the first customer to browse a property, having a better offer is the only way for you to seal the deal.
When you have a clear understanding of your budget, you can quote a better offer on your favorite property. All that, without being unsure about whether or not you can afford it.
7 Ways to Get Pre-approved for a Mortgage
With a ‘pre-approved’ tag on your chest, you can buy the house that you have been eyeing at ever since you became an adult. All you need to have is the right documents and you are all set to become a proud owner of your next property.
Maintain your credit score
You might have heard this too many times, but you must know why having a good credit score is important. It truly influences your application in both good and bad ways. A good credit score can fast-track your loan application while a bad one can set you back by months.
A credit score of more than 600 points is considered adequate by any lender. If you have never missed a deadline on your credit card bills and paid timely installments, you won’t have to worry about this as much as you would otherwise.
Get all your documents in place
You are required to cooperate with your lender if you want to get pre-approved. So, you must not only have your income-related documents but also those that can ID you. This includes your driver’s license, social security number, existing loan documents, and other current liabilities.
Connect with more than one lender
Lenders are usually choosy with who they pre-approve. Instead of relying on one lender, you must reach out to multiple lenders who you think are willing to give out a home loan. But it’s not just about enjoying a ‘best out of 5’ scenario. Contacting multiple lenders helps you decide who is the most suitable financial partner for you.
Learn about the interest rates and other charges your lender is offering. Once you are happy and sure that you can afford it, only then should you take things ahead.
Keep your debt ratio lower than your income
Lenders prefer to pre-approve those candidates who have fewer debts. They compare your debts with your income, which allows them to know if you can repay the home loan. Since this is another important step to getting pre-approved, it’s ideal to maintain a healthy debt to income ratio.
You need to be upfront about your finances with your lender. Avoid hiding debts or liabilities in hopes to get pre-approved. All your transactions are monitored, so hiding can lead to legal consequences.
Prove that you have consistent income
For people with 9 to 5 jobs, this isn’t a big deal. All you need to do is submit your income proofs (usually salary slips) to determine your eligibility. However, if you are a freelancer, you might have to go down a more complex path.
Getting Pre-approved When You Are a Freelancer / Self-Employed
Being pre-approved is a power more than a privilege. It is proof that the bank or lender trusts your repayment capacity. Since freelancers and self-employed professionals may or may not have stable employment or income, it is difficult for the lenders to determine their reliability. So, you must do everything to make yourself more credible to get pre-approved. Here’s something that can help make it easier.
Proof of income
The main issue with getting pre-approved while not having a 9 to 5 job is that you need to show proof of stable income. Even if you have been freelancing for years, lenders will struggle to decide your credibility. So, make sure your bank statements show a steady flow of money. If you earn enough, you would not face any problem getting pre-approved for a home loan.
Get your credit report
This part won’t be as intimidating to you if you are sure about having a solid credit score. The lender may try to postpone your application if you are self-employed or a freelancer. So, avoid letting that happen to you and order in your credit report beforehand. If you have a perfect score, the lender will be more forgiving toward your application.
Consult a loan officer
Getting pre-approved is tricky as a freelancer, so don’t hesitate to enlist the help of someone who is more experienced than you. In this case, a loan officer can save you time and even double-time your home loan pre-approval process.