Are you are planning to buy a home, and want to make sure that you will be able to get a loan. Pre-approval is method employed by lenders in evaluating your credit worthiness by requesting your credit report, going through your income-to-expense ratio, and looking at your financial state of affairs.
Getting a pre-approval from a financial institution is the first step in the home buying process. To find out if you will be able to buy a property, getting a loan pre-approval will determine that. You can be confident in your ability to buy a property for a approved amount of loan, once you get the pre-approval.
When somebody applies for a loan, it is not guaranteed that he or she will be qualified for the loan. Financial institution who lend money want to make sure that the borrower has the ability to repay the loan. One of the most important thing to do first is to have your finances in order before applying for a loan.
Important factors a lender will look for when you apply for a home loan
a. Down payment: Lenders want to make sure that you have anywhere between 3.5% to 20% to put down as down payment on your home purchase price.
b. Employment history: You must be steadily employed for at least last two years, this is to ensure that you will be able to make your timely loan payments.
c. Credit history: If you have a good credit score, it will be easier for a lender to approve you for the loan.
d. Income: You should have enough monthly income to make your monthly mortgage payments and be able to meet the other expenses without causing hardship, that can cause non-payment of loan installment payments.
The lending bank will want to know how much money you make yearly and, if there are any other sources of income such as stocks, bonds, other income generating sources and total expenses in order to pre-approve you for the loan. Debts like car loan payments, credit card payments and student loans if any will be taken into account in calculating the right loan amount.
The lender will factor in all of this information and the term of loan ( 30 years or 15 years) you choose. With this information the lending institution will be able to determine as to your ability to pay back the loan.
The very first step in a home buying process is to get a loan pre-approval from a lender, this will allow you to search for homes in the price range you have already been pre-approved for.
Going through pre-approval process and getting pre-approved will help you in making offers on properties you like without hesitation. You will also become aware of the process of loan approval. It will be quick when it is time to apply for the loan.
