Securing Pre-Approved Home Loans With Bad Credit: How They Benefit Home Hunters

The commitment required when taking on a mortgage is extreme. Not only is the debt going to be the largest private debt that anyone is likely to take on, but it will take half a lifetime to repay it. And the time mortgage providers take in assessing an application can damage chances of agreeing a home purchase. Thankfully, it is possible to get pre-approved home loans, with bad credit being no great impediment.

The obvious advantage in securing mortgage pre-approval is that the home hunter is in a stronger negotiating position when it comes to agreeing a price for the home they want. What is important to understand, however, is that pre-approval itself is not an easier process - there are no short cuts.

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The process involved in getting a home loan is longer and precise, with mortgage providers taking as long as 90 days to decide whether to approve the application or not. But while the wait is not shortened, the benefits make the decision worthwhile.

Mortgage Pre-Approved: How It Works

The process involved in getting a pre-approved home loan with bad credit is not particularly complicated - at least, no more complicated than seeking mortgage approval after a home is found. But the practical advantage is that it ensures funds are available for the purchase of a home before the home itself is found.

To that extent, the pre-approval system is based on maximum funds made available, rather than the sum required to buy the desired home. Normally, the applicant finds the home they want within the budget they have, then applies for the precise mortgage figure.

Securing mortgage pre-approval allows the home hunter to begin their search with confidence. They are given a letter by the mortgage provider confirming the size of the home loan available, and this can be handed to the seller to seal the sale.

How Pre-Approval Can Benefit Borrowers

Time can be a major problem for home hunters. Often, the home they settle their hearts on is lost because of the delay in waiting for news that their mortgage application has been approved. The home seller wants to seal the deal and receive their money as quickly as possible.

While getting a pre-approved home loan with bad credit can still be a long process, it reverses the sequence of events, which effectively means that the home hunter already knows exactly how much they have at their disposal. So, the wait for approval is past by the time they find the property they want, and the deal can be agreed immediately.

What is more, by securing mortgage pre-approval, there is an opportunity to secure some large savings too. Some sellers may wish to sell quickly, and offering to pay immediately (or transfer funds within 48 hours) can earn a discount on the house price. Instead of a home loan of $250,000, the borrower might need $245,000.

Key Mortgage Terms

It is understandable that getting a pre-approved home loan with bad credit means accepting some high interest rates and less-than-ideal terms. But that is not to say that the mortgage cannot be affordable. There are ways to make the loan more manageable.

After securing mortgage pre-approval, there may be some advantages when agreeing a price, but the repayment terms can still provide a stumbling point. However, lenders are willing to combine rate types to provide the best break for the borrower.

For example, an 80-20 mortgage sees 20% of the sum approved with a fixed interest rate, and the remaining on a variable rate. A 30-year home loan can be divided into 3 years at a low fixed interest rate, and then 27 years at a variable interest rate. Some lenders offer better terms, so be willing to negotiate.

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