What’s in a Credit Check? Getting Approved for a Bank Sale

by Simon Lindsay on Real Estate Investing

With the large number of bank sale properties on the market, many potential homebuyers are filling out home loan applications and seeking approval from their lender. We all know that getting approved for a home loan is a bit more difficult due to the strict lending standards imposed by banks after the real estate market crash. As a result, it’s crucial to understand what banks look at when approving a home loan.

How do Lenders Conduct a Credit Check?

Once lenders receive your application, they will obtain your credit score from the three major credit bureaus (Experian, Equifax, and TransUnion). After carefully analyzing and comparing these three credit scores, they take a closer look at your credit history to determine whether they believe you will be able to pay your mortgage payments on time.

What Stands Out in Your Credit Report?

Although banks will look at the credit scores, they will also take a closer look at your credit history to better determine if you should be approved for the loan. These lenders will look at everything from your credit history to your current debt balance. Lenders will examine your current debt balance and compare that to your monthly income to determine if the mortgage payment is feasible and within your budget.

For example, if you make $2,000 per month and you have a $600 car payment and multiple credit cards that are maxed out, a lender is less likely to approve you for a home loan that would require you to pay $1,000 per month on your mortgage. On the other hand, if you make $5,000 a month and only have a car payment of $600 and very little other debt, approval is much more likely. Therefore, the amount of debt you currently owe and the history of how quickly you pay off your debt are definitely taken into consideration by lenders.

Why is it Important to Understand what Lenders Examine?

Many people are searching for bank sale properties at the various listing services . However, many people are considering properties that are out of their budget. Therefore, understanding that banks closely examine your current debts and compare that with your current income can assist with helping you to ensure the home you are considering is within your price range.

You can obtain 3 free credit reports per year from the major credit bureaus– one per bureau per year – and get a better idea of what the lender is looking at when considering your home loan. Before even applying for a mortgage, check your credit score and current debts and locate a bank sale property that falls within your budget and is more likely to be approved by your lender.

In the end, banks do take your credit score seriously, but they also take a closer look than merely looking at the numbers provided by the credit bureaus. Lenders consider everything involving your credit history including your current debts and recent payments.