Pre-Approval for Home Loans: An Essential Step if You Have Bad Credit

Most people in the market to purchase a home have heard people discuss “pre-approval” a lot. However, despite their nods of understanding, many potential homebuyers do not actually comprehend the process of pre-approval or why it is so important. Especially in the cases of bad credit, home loan pre-approval can be the difference between getting the house you want and losing it to another buyer. This article will full explain this pre-approval process in an effort help everyone, but especially people with bad credit, get the home loan they need.What Is the Pre-Approval Process Like?When talking to a lender in order to attain a pre-approval letter to purchase a home there will be several, somewhat invasive, financial steps to take. Generally, in addition to your complete credit report, the lender will need to review all of your other holdings and want to see an income history going back several years.Basically, the process is designed to weed out people without the means or the ability to repay the loan. Since home loans are so large, default can cost a bank more money than many other loans. That is why credit can play an important role and bad credit is important to actively overcome.Come PreparedSince the purpose behind a pre-approval letter is the ability to show sellers of your seriousness in the home buying process, gaining pre-approval is an essential step towards getting the home that you want. If you have bad credit, home loans are less easy to come by. This is because your poor credit history will make lenders question your ability to repay your home mortgage loan.You can help to alleviate their fears through preparation. Make sure going into your mortgage meeting that there is a solid plan for repayment. Display an active knowledge of your current financial obligations and income through a detailed budget and discuss your plans for ensuring the responsible repayment of your home loan.Steps to Gaining Pre-ApprovalOnce you are prepared to meet with a lender and get pre-approval, four primary documents that are needed.1. An application for the home loan. This will also ask for you to describe your personal and financial goals.2. The purchase agreement for your present home (where applicable)3. Your latest tax returns, both state and federal4. A complete list of the expenses your household pays each month (this is your budget)If you have bad credit, you may also want to consider putting together a portfolio of information that will help to both explain why your credit is as bad as it is in the first place and also show how you have reformed your ways since falling into the bad credit situation. Acquiring personal and professional letters of recommendation may be a good way to achieve the latter goal.The Pre-Approval LetterOnce you have successfully completed the pre-approval process (this can take from 30 days to 90 days, depending on the lender), your lender will issue you a letter that explains how much money he can lend you (total) and the details on interest rates, terms and other conditions attached to the loan.This letter can then be tailored for any home that you intend to put an offer on. The lender will write a letter that explains that you will acquire the home loan and you will submit that letter to the seller along with your offer. Your bad credit will no longer come into play and you will be on track to getting the home that you have always wanted.