Mortgage Pre-Approval: Why Your Credit History Is Important to a Lender

Credit HistoryPre-approval is an integral part of the home buying process, and as we said before, this step is very important as it could save you a lot of time and stress.

Just to clarify, getting pre-approved is not a requirement if you’re simply looking to shop around for homes or to make a bid, but there are several advantages to getting pre-approved for a mortgage. For one, you will be able to find out beforehand whether you qualify or not for a mortgage, but if it’s revealed that you don’t qualify, you should think of it as a glass-half-full situation – at least you know why you didn’t qualify, and what you can do to improve things for the next monetary health check.

What do we mean by “monetary health check”? We’re referring to your lender checking your credit history, on top of the income statements and other related documents you furnish. And it won’t just be your credit score that they’ll be looking at – your entire credit report will be pulled, and your lender will be scrutinizing each and every detail that’s on the report. Yes, you may have a good credit score and you may earn enough to buy that dream home you’ve been eyeing, but if there are issues on the overall report, there’s a chance you won’t qualify for a mortgage.

Then again, you may be wondering why your lender would jump to such a conclusion. Here are some reasons why. First of all, and probably most importantly, they may expect that you’re the type of customer who would not be able to pay their mortgage on time. If your credit report includes late payments on credit cards, auto loans, and other types of debt, the bank may conclude you may end up doing the same when it comes to your mortgage.

There are also other reasons your lender may hesitate to pre-approve you based on your credit report. If they notice you’ve made several requests to have your credit pulled for a credit card or personal loan, they may think you’re in dire need of financial assistance or easy money. A high debt-to-income ratio may also catch their eye in the wrong way, and make you appear like you spend way too much. And lastly, another red or yellow flag may be a lack of credit history, i.e. not having enough accounts in your name.

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