Getting a pre-approval is one of the most decisive steps to take when acquiring your dream house. Although several other factors can impede the goal, a pre-approval is an excellent way to kickstart the process. Here are six things you should know about pre-approval loans:
WHAT IS A PRE-APPROVAL LOAN?
A pre-approval is the first examination of the financial records of a borrower by a lender to decide whether the borrower is worthy of a pre-qualification offer. A pre-approval determines the extent to which a borrower is qualified for a loan. A pre-approval contains the maximum amount the lender can give a borrower. This helps the prospective homebuyer narrow his search when making inquiries about the availability of a home.
HOW ARE PRE-APPROVALS GENERATED?
Pre-approvals are generated after an analysis of the credit information of a borrower. After consultation with Credit Reporting Agencies, they are generated by lenders to get a list of pre-approval offers. Some of the information analyzed includes the borrower’s income, savings, investment, and repayment of previous debts incurred. A credit score is later generated for the borrower, which eventually decides his qualification for pre-approval.
HOW DO I QUALIFY FOR A PRE-APPROVAL LOAN?
Aside from meeting the required credit score of the lender, a borrower must also have a debt-to-income ratio of about 36% or less, depending on the borrower’s income. If qualified, a borrower obtains a pre-qualification which gives you a range of what you can borrow, and a pre-approval which contains the specific amount of loan you’re capable of getting.
ARE THERE BENEFITS OF GETTING A PRE-APPROVAL?
A pre-approval may prevent you from getting your dream mansion beside the beach with the tennis court, in a perfect neighborhood, and all the features you crave. However, it makes up for the luxury by making you stick with a budget that matches your finances, thereby reducing any long-term adverse effects of debts.
Also, a pre-approval makes you an ideal homebuyer that any seller will be willing to have. A pre-approval indicates that a prospective homebuyer is serious and is ready to buy a home as soon as possible.
ARE THERE ANY PROBLEMS YOU CAN ENCOUNTER WITH PRE-APPROVALS?
There’s no drawback in acquiring a single approval. However, obtaining multiple pre-approvals can harm your chances of securing your mortgage loan. Your previous pre-approval can be seen on your credit file, and evidence of multiple pre-approval offers could send a signal that you’re financially unstable. To avoid multiple pre-approvals, you may have to take your time to ensure you’re ready to take a loan.
DOES A PRE-APPROVAL IMPLY THAT YOUR LOAN IS APPROVED?
Pre-approval does not directly imply that your loan has been automatically approved. It only gives a positive impression that your loan may be approved. After all, certain conditions can still affect your loan after the pre-approval must have been guaranteed. A possible change in government policies, a negative valuation of your property which may arise from a change in the condition of the property, and a change in your financial status or income are crucial factors that can still affect despite the issuance of a pre-approval.
