Buying a home is certainly no walk in the park. It is not just because of the lengthy hunt for the right property but the challenge of getting home loans with bad credit. These days the vast majority of home hunters have low credit scores - a product of the economic recession that has existed in the last few years.
With the uncertainty that can surround the chances of loan approval, the whole process to getting the right home is made less certain too. The waiting period to secure your mortgage loan gives others a chance to step in and take your new home from under your nose. The solution is in securing mortgage pre-approval.
There are huge benefits to getting home loans pre-approved, not least the fact that it provides home hunters with a definite budget. But it requires qualification and a lengthy approval process.
How to Qualify
When it comes to seeking any kind of home loan with bad credit, the financial status of the applicant is telling. Unlike other loans, there are specific issues that mortgage providers need to address other than simply the affordability of the mortgage. So, they request that four particular documents be submitted.
The first is a Statement of Goals. This is a document that simply states what the borrower is applying for the money for, and how they will set about ensuring they can make repayments over the lifetime of the mortgage. The chances of securing mortgage pre-approval for those who have a clear plan are much greater.
A second document is a Purchase Agreement, though this is only necessary if the applicant is selling their own home to move to another. Another is a Tax Statement, to ensure that all necessary tax returns have been filed. And lastly, lenders want to know the monthly outgoings so they can calculate whether the home loan is actually affordable.
The Effect of Bad Credit
While bad credit is not the reason that any loan application is rejected, it would be foolish to claim that it does not have a detrimental influence over an application. The chief influence is over the interest rate charged, so when it comes to home loans with bad credit it can make the whole deal very expensive.
However, lenders want to know why the credit score is so low too. This is because there is a world of difference between someone who has a poor history in making loan repayments, and those who have fallen on hard times. Applicants have a chance to explain things to the lender, so securing mortgage pre-approval remains a real possibility.
It may be necessary to provide documentation, such as for a bankruptcy ruling. But if the lender feels confident that the applicant can be trusted, then the home loan can still be secured.
The Approval Process
For many loans, the approval process takes no more than 24 hours, but when it comes to getting home loans with bad credit it takes quite a bit longer. It is understandable since the debt is far greater, but it still means that there can be no jumping into the purchase of a new home.
This is another reason why securing mortgage pre-approval is a good idea. Once the approval is granted, then the search and purchase of a home can be accomplished very quickly. Typically, the waiting period for approval is between 60 days and 90 days. It takes this long because every little details of the application is checked out.
A letter is finally issued to the successful applicant confirming pre-approval and the full value of the home loan granted. This can be shown to the real estate agent to confirm the funds are there to buy the property.