5 Steps For Getting Your Real Estate Loans Approved
For many people, one of the biggest hurdles in buying a home is getting their real estate loan approved. They may be able to afford a monthly payment, have saved up for a down payment, and found the perfect home, but without an approved loan, their dream goes down the drain.
Although the mortgage process is not necessarily complicated, it is a very daunting task. Whether this is your first time applying for a real estate loan or you’ve done it before, the what-ifs never really disappear.
While every lender will operate a little differently, here are some general steps to follow in order to make sure that your real estate loan is approved.
#1. Check Your Credit Score
There are many people who apply for real estate loans without checking their credit score, only to be shocked and upset when their application is denied. While a credit score may not be the only factor or even the biggest one, it does come into play a lot of the time.
It is possible to get a real estate loan with a lower credit score, but expect to encounter some additional hurdles and be required to pay PMI or MIP. Most lenders look for credit scores of 650, but this will vary greatly depending on the amount you’re hoping to be approved for and the lender’s own policies.
Before applying for a real estate loan, check your credit score. Using a free calculator, you can see what lenders will see and can use this information to plan accordingly. Whether you need to adjust your credit card usage, pay off existing bills, or expand your line of credit, you’ll learn which factors are helping and which factors are hurting your score.
If you notice any inaccuracies on your credit report, be sure to dispute them as soon as possible. Any negative marks on your report will harm your chances of being approved for your loan, so try to fix any problems before you submit your loan application.
#2. Prepare All Your Documents
With a loan, there are a lot of documents that need to be provided and paperwork to be filled out. If you’re able to prepare these in advance, then your application will move along much faster and it will be easier to get approved. Instead of spending days or weeks searching for a requested document, you’ll already have it on hand.
Documents that are often requested include work history, income information, tax returns, any bank or brokerage statements, and other debt or income documents. While you may not be able to anticipate all of the documents a lender may request, having the above prepared ahead of time will make things easier when the time comes.
#3. Only Shop For What You Can Afford
You may be surprised by the number of people that attempt to get a loan for more than they can afford. They walk in with their application, excited about buying a new home or property, only to receive notice that their application has been rejected. Why? Because they wouldn’t be able to afford it.
Lenders are very good at calculating what a household can and can’t afford to spend on a loan. If your resources don’t line up and they aren’t sure you’ll be able to pay off the loan, then they’ll reject your application rather than take the risk. Due to this, it’s important that you know how much you can afford before going in to speak with a lender.
In some cases, it’s possible to be approved for a loan that’s a little out of your budget. However, this would mean being approved for a loan of $450,000 when you can only comfortably afford a loan of $390,000. It would not mean being approved for $525,000.
Since lenders can and will reject a loan that’s too big for you, make sure you only shop around for what you can afford. Determine your budget and then stick to it. Don’t try to wriggle outside of it or you’ll soon find that you’re looking at the property $50,000 or even $100,000 above your budget!
#4. Save For a Down Payment
Some real estate loans don’t require a down payment, but most do. Luckily, you can find loans with lower down payment requirements such as 10% or even 3.5%. If you’re able to save enough money to afford a 20% down payment, though, then you should.
Higher down payment will get you that much closer to paying off your loan. It can also eliminate MIP payments and reassure lenders. With more equity in your home from the start, you may also have lower monthly payments which in turn will reduce the risk of you defaulting on the loan.
#5. Be Pre-Approved
Pre-approval may sound like a commitment, but it’s not. When you’re pre-approved by a lender, you essentially receive the response “yes, if”. It’s a conditional approval that happens before the lender sees which property you want the loan for. While it is possible to later be denied even after a pre-approval, the odds are much lower.
Having a pre-approval letter in hand is not only reassuring to you, but also to the seller. Sellers don’t want a sale to fall through so if you’re able to show them proof that you’ve been pre-approved for a loan, they’re more likely to think of you as a reliable buyer.
A pre-approval letter can be one of the best tools at your disposal when it comes to working with a seller and putting down an offer.
In Summary
Applying for and being approved for a loan are two big steps that, unfortunately, may take quite a bit of time. By preparing documents ahead of time and taking the extra steps to be pre-approved, you can help speed the process.
While there is never any guarantee that you’ll end up being approved, your odds are higher so long as you stick to your budget and know what you’re getting into.
