Most property buyers finance their own purchases. This means that almost all, especially those who have no experience in purchasing, require a loan. There are times when some people mistake getting a loan as the real issue with real estate financing. They got it all wrong. The real issue here is getting the loan that's right for you--the mortgage, the lowest costs, and the best terms that suit you and your family.
It is in such situations that pre-approved loans are very handy. Pre-approval means that you, the buyer, already met the loan officer. Your credit files have been reviewed closely. The loan officer has given you the approval that you are qualified for the loanable amount, or to be more specific, for particular mortgage programs. With this, the lender will provide a pre-approval letter. This letter shows your borrowing power.
The advantage of a pre-approved loan is that by meeting with loan officers in advance and identifying mortgage programs, it won't be imperative to quickly find a lender, check credit, and then rush into a financial decision that might not be the best option. If you want to get a pre-approved loan, here are some steps you can take:
- Get a referral. Get a referral for a lender or mortgage broker from your contacts--friends, relatives, co-workers, or other real estate brokers. Getting referrals ensure the credibility of the broker. This puts your mind at ease because people you trust recommend this particular person or lender and you're not in a pool of muddy water where you and your loan pre-approval are concerned.
- Provide the necessary documentary requirements. Prepare the following essential information: gross monthly income and total monthly payments like car payments, credit card payments, child support and any other payments you have to pay every month. You may also be required to submit other important paper documents.
- Get your ratios. You, or your lender, can add all your debts and compare that amount to your income to arrive at a ratio--the total debt-to-income ratio. You will often get the best interest rate if your percentage stays under 36 percent. The secret is this: the lower the percentage, the better the offer.
- Authorize your lender to pull your credit report. The report should enclose a FICO (Fair, Isaac and Co.) score that is most widely used by lenders as a credit scoring system. A credit score is a system of calculating the risk of lending to you. This is based on several factors. Some include the length of time you've had your current job or occupation, length of time you've spent your time in your current address, and ratio of your own balances to your available credit lines. A FICO score of 680 or better is considered excellent. Good ratios and other positive factors get you the best interest rates available and suitable for you.
- Have the lender prepare a letter of pre-approval for you. The letter should contain that your credit information has been thoroughly reviewed and that it looks good. However, the letter should also state that it is not a guarantee of a loan.
Pre-approved loans are very helpful and handy in choosing your own homes. It offers you the best deal for you and your family. So, try and get a pre-approved home loan if you are house hunting.