Getting Pre-Qualified
Getting a credit pre-approval
means you receive a loan commitment from your mortgage company
before you have found a home, based on a review of your credit and
finances. A credit pre-approval shows sellers that you’re a
qualified buyer and helps you establish a clear price range.
Before you start looking for a home you approve
of, you need to find a lender that approves of you.
You'll need to fill out an application that
tells all about how much you make, how much you've saved and how
much you owe on everything from cars, to school loans to credit
cards.
The lender will assess that, check your credit
report and scores and reply with a letter saying you've been
pre-approved and for how much.
That's important because some real estate
agents won't even show you a house or condo until you can show them
that letter. It tells them that you're a serious shopper with the
financial wherewithal to make a deal.
It's also your first chance to see what a bank
or mortgage company thinks about you. Getting pre-approved can make
it quicker and easier to get a loan and close on a house and, in
most cases, the process is free.
Don't settle for just being
"pre-qualified."
That means the lender took your word for
everything and didn't pull your credit history or scores. It doesn't
tell you very much about your ability to get a loan and sellers
consider it to be meaningless.
Here's what you need to do win pre-approval:
Step 1. Get your
credit reports
You should see what's on your credit reports
before you ask a lender to look at them. Those reports and the
credit scores calculated from that information -- will play a major
part in determining whether you qualify for a loan and how much
interest you'll have to pay. (The lower your score, the higher the
interest rate.)
You are entitled to a free credit report from
each of the three major credit reporting agencies every year. To get
yours, go to
www.annualcreditreport.com.
There are three credit reporting agencies, and
since you don't know which one your lender will look at, you should
check all three. If you are married, you will need your and your
spouse's credit reports -- six in all.
Even though the reports will be similar, there
can be differences, and each agency will calculate its own credit
score for you.
The free credit reports do not include your
credit score because the reporting agencies are not required to
provide that.
You must buy your score, including a copy of
your credit report, by contacting the agencies directly:
Step 2. Correct the
mistakes
The credit reporting agencies never check any
of the information they're given by credit card companies, utilities
or other companies. And since they receive millions of pieces of
data every day, lots of mistakes are made.
According to a recent survey by the Government
Accounting Office, 70% nearly three quarters of all credit reports
contain at least one error.
So check every entry on every report to ensure
its accuracy. Then contact the reporting agency to correct any
mistakes. Each credit report will tell you how to do this.
You can't ask the reporting agency to remove
any legitimate black marks on your credit report, such as missed
payments, late payments, repossessions, foreclosures, or
bankruptcies.
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