Pre-Approval
When you apply for a loan, your lender will look at several things:
- Down payment amount
- How long you have been employed in your current position
- Whether you have the funds on deposit for your down payment and closing costs
- Your income-to-debt ratio and your credit report
Lenders nowadays place much emphasis on the credit report. Credit bureaus compile a record of debts from credit card companies, banks, department stores, and other firms. This information appears on your credit report, so it shows whether you pay your bills on time. Lenders develop credit ratings based on how well you manage this function. The higher your credit score, the more flexible lenders will be in loan approval and specific requirements.
When you meet with lenders, ask how they decide if you are a good credit risk. It is likely to be from a credit report. Lenders can order the credit report for you and discuss your score. If your credit is less than sterling, they can usually offer suggestions on how to strengthen your credit position.
A WORD OF CAUTION: Having too many lenders look at you credit drive your credit score down as one of the components of the credit score deals with the number of credit score inquires. Every inquiry is a hit and drives your score down, so … SHOPPING LENDERS CAN ACTUALLY HURT YOU.
RECOMMENDATION: You can speak with several lenders without driving your credit score down by following these guidelines:
- If you haven’t given them your social security number or driver’s license, they can’t get your credit report / make a hit on your credit score.
- While you can’t get pre-approved without providing this information, it does allow you to at least interview the possible lender agents to decide perhaps who you would rather work.
- Note that there is actually little variation on what your real interest rate is from legitimate lenders. What varies is the terms and fees. Items such as Origination Fees and Discount Points are fees that are charged that in effect buy down the interest rate. Normally, you are better off not to buy down the rate, as it takes several years to actually realize any savings. But everyone’s situation is different. Drop me a line if you want to discuss whether this would be beneficial in your circumstances.
- Ask for an estimate of closing costs associated with the loan. Ask for an explanation of the fees/charges. Many lenders use this as a way to extract additional monies and drive up the profitably of a loan, with what are known as “Junk Fees.”
- If a lender ever mentions they can get a property to appraise for more than the asking price, BEWARE … this is a technique often used by PREDATORY LENDERS.
If all this seems a little overwhelming, don’t hesitate to give me a call at 205.937.0237 and I’ll do my best to help you.
