Very rarely is someone able to pay for an entire home outright. Even when it is possible, it’s usually not optimal, because it takes a considerable amount of wealth at one time. However, that means that the average homebuyer is extremely reliant on a loan if they want to get their housing needs taken care of.
Pre-approved home loans are the best-case scenario, but they can be difficult to obtain. After all, the bank needs to protect its money, too.
Today, we’re going to share with you how you can enhance your chances of getting a pre-approved loan despite all the obstacles that banks tend to put in place.
Let’s get started.
1: Gather Documentation
Without the proper documentation, it doesn’t matter if you have everything else on this list. You won’t get pre-approved.
Luckily, the requirements aren’t anything that you should have trouble meeting unless you haven’t bothered to record anything for years.
First, you’ll want your last two W2 files from the previous two tax seasons. This is a basic requirement to prove your annual income and financial stability.
Your W2s should also be supplemented with at least three months’ worth of pay stubs. However, 6 months of pay stubs are preferred and typically required.
The rest of the documentation consists of the basics. You’ll need your ID, social security number, and tax returns.
2: Get a Free Credit Check
Unfortunately, “hard” credit checks impact your credit score. You don’t want to attempt to get a loan until you know you have a solid chance of getting it, because every failed attempt will end up dragging your score down lower, and the process will only get harder. It doesn’t make much sense, but that’s how it works.
Luckily, you can check your credit score ahead of time without impacting it.
There are a lot of services that will check your credit for free, and it won’t lower your score. Many banks offer this service, and there are dedicated companies that do it.
If you leverage that to your advantage ahead of time, you can get a better understanding of where you stand with your credit score, compare that to the average bank requirement, and prevent attempts to borrow when you’re not qualified.
However, free credit checks are not extremely accurate. If you’re barely cutting it close, you might want to spend time building your credit.
3: Remove Debt
Even if you have great credit and tons of income, you can get denied. This is common because of the debt that you have accrued.
The lender doesn’t want to approve someone who is indebted to other entities and barely scraping by regardless of how much they make. The cash to afford more payments simply isn’t there. If you just have a rented appliance or a couple of outstanding credit card payments to worry about, that probably isn’t a problem. Other loans, large car payments, and lots of small debts will affect your ability to get a loan, though.
It’s best to knock down your debt as much as possible before approaching a lender. When you take care of your existing debts, you’ll be much more likely to get approved.
4: Always Research Multiple Lenders
Just because you have used a bank for decades, or you got great referrals for a certain lender, doesn’t mean you need to choose that first option right off the bat. A home loan is usually the largest debt the average person accrues in their lifetime, and it’s not a situation to take lightly.
As such, you want to communicate with and research as many lenders as you can to find terms that will work in your favor.
This means looking at the interest rates, the model used for interest rates such as fixed interest, downpayment requirements, closing costs, and anything else. You want to know exactly what type of deal any potential lender offers to ensure that you don’t enter into an agreement that costs you more than you should.
Of course, this is a long-term agreement. So, you want to make sure that the terms are suitable for decades; not just whatever is appealing upfront. You don’t know what your financial status will look like in the future, and playing it on the safe side, even at a slightly increased upfront cost, is often the smartest way to purchase a home.
You should do direct research first. Call around, or go to each lender’s physical location, and ask questions. Make sure you’re talking to a qualified staff member, and they should be able to give you a complete rundown of the optimal loan conditions if you’re accepted.
However, don’t stop there. As with most things, you really can’t trust that everything you’re hearing directly from the source is true or all you need to know.
You want to leverage the internet and your personal relationships to verify each lender’s claims, check the lender’s reputation, and make sure they’re someone you want to do business with.
You can do this by checking multiple review sites, BBB ratings and reviews, and other online resources. However, if you have friends or family members who have used any of the lenders you are looking at, it’s worth asking about their experience, too.
If you exercise a bit of caution when reading reviews or listening to testimonies, you can get a good idea of how the lender operates. Just don’t get caught up on every little claim in a review. Some angry reviewers might have caused their own problems, and they tend to be the loudest. At the same time, overly glowing reviews are sometimes paid for or fabricated.
You want to pay attention to objective reviews.
Getting Help with Your Next Home Purchase
As we said earlier, a home purchase is no small feat. It is likely going to be the biggest purchase of your life, and you want to have a lender on your side who cares about your long-term success.
If you’re looking to purchase a home, contact Hardeep Home Loans. Our staff will help you find the best loan option for you to get you into a new home without the hassle.