Content of the material
- 1. Check your credit
- What are the Chances of Getting Denied a Mortgage After Pre-approval?
- You are leaving the Wells Fargo website
- 5. Origination Fee
- The Pre-approval Process
- 1. Type of Mortgage and Terms of the Loan
- 2. Property Information and Purpose of the Loan
- 3. Borrower Information
- 4. Employment Information
- 5. Monthly Income and Combined Housing Expense Information
- 6. Assets and Liabilities
- 7. Details of the Transaction
- 8. Declarations
- Debt-to-income ratio
- 3. Compare loan offers
- Things to consider
- Tips for speeding up the process
- Before Getting A Personal Loan: What To Know
- Loan Amount
- Secured vs Unsecured Personal Loans
- Personal Loan Requirements
- The Terms
- Our standards for Debt-to-Income (DTI) ratio
- Can you get approved for a loan with a bad credit score?
- Get Preapproved Online
- Step 1: Apply And Check Your Credit
- Step 2: See And Customize Your Mortgage Solutions
- Step 3: Get Your Approval Letter
- Qualifying Through Your Bank Or Credit Union
- Unsecured Personal Loans
- Secured Bank Loans
- 2. Income
- Related Resources
- What Credit Score Do You Need To Buy A House?
- Mortgage Preapprovals Vs. Prequalifications: Which Should You Get?
- How Much House Can I Afford? How To Assess Your Finances And Calculate What To Spend
- Personal loan rates
- What next?
1. Check your credit
Before starting the application process for any kind of loan, it’s a good idea to review your credit.
Credit history and credit scores are among the financial factors lenders will generally consider when reviewing your loan application. Your credit history can affect whether a lender will approve you for a loan and the interest rate it offers you. Good credit can typically make it easier to get a loan and a favorable interest rate.
You can use the Credit Karma app to check your Equifax® and TransUnion® credit reports for free. You’ll need to sign up for an account to use the app and get your credit scores, but it’s always free to join.
Lenders may also consider your debt-to-income-ratio when considering you for a loan — which is the total of all the debt payments you must make each month divided by your gross monthly income. This ratio helps lenders understand how well you’ll be able to manage repayment if they give you a personal loan.
What are the Chances of Getting Denied a Mortgage After Pre-approval?
If you’ve stayed within your budget, not high, but it does happen. Remember that pre-approval is a statement that you are considered generally qualified to pay back a mortgage, whereas the actual mortgage approval is on a specific purchase. The lender may believe that you are paying too much or may have uncovered liabilities that they did not find in the pre-approval. Also, if you are not able to pay a certain percentage of the cost in a down payment, typically 20 percent, then you may have to purchase mortgage insurance, which increases your costs.
You don’t have to stay with the lender that gave you pre-approval, so you can consider applying elsewhere, which is a good idea in any case.
You are leaving the Wells Fargo website
5. Origination Fee
Though not part of the qualification process, many lenders require borrowers to pay personal loan origination fees to cover the costs of processing applications, running credit checks and closing. These fees usually range between 1% and 8% of the total loan amount, depending on factors like the applicant’s credit score and loan amount. Some lenders collect origination fees as cash at closing, while others finance them as part of the loan amount or subtract them from the total loan amount disbursed at closing.
The Pre-approval Process
Applying for a mortgage can be exciting, nerve-wracking, and confusing. Some online lenders can pre-approve you within hours, while other lenders can take several days. The timeline depends on the lender and the complexity of your finances.
For starters, you’ll fill out a mortgage application. You’ll include your identifying information, as well as your Social Security number, so that the lender can pull your credit. Although mortgage credit checks count as a hard inquiry on your credit reports—and may impact your credit score—if you’re shopping multiple lenders in a short time frame (usually 45 days for newer FICO scoring models), the combined credit checks count as a single inquiry.
Here’s a sample of a uniform mortgage application. If you’re applying with a spouse or other co-borrower whose income you need to qualify for the mortgage, both applicants will need to list financial and employment information. There are eight main sections of a mortgage application.
1. Type of Mortgage and Terms of the Loan
The specific loan product for which you’re applying; the loan amount; terms, such as length of time to repay the loan (amortization); and the interest rate.
2. Property Information and Purpose of the Loan
The address; legal description of the property; year built; whether the loan is for purchase, refinance, or new construction; and the intended type of residency: primary, secondary, or investment.
3. Borrower Information
Your identifying information, including full name, date of birth, Social Security number, years of school attended, marital status, number of dependents, and address history.
4. Employment Information
The name and contact information of current and previous employers (if you’ve been at your current position for less than two years), dates of employment, title, and monthly income.
5. Monthly Income and Combined Housing Expense Information
A listing of your base monthly income, as well as overtime, bonuses, commissions, net rental income (if applicable), dividends or interest, and other types of monthly income, such as child support or alimony.
Also, you’ll need an accounting of your monthly combined housing expenses, including rent or mortgage payments, homeowners and mortgage insurance, property taxes, and homeowners association dues.
6. Assets and Liabilities
A list of all bank and credit union checking and savings accounts with current balance amounts, as well as life insurance, stocks, bonds, retirement savings, and mutual fund accounts and corresponding values. You need bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves.
You’ll also need to list all liabilities, which include revolving charge accounts, alimony, child support, car loans, student loans, and any other outstanding debts.
7. Details of the Transaction
An overview of the key transaction details, including purchase price, loan amount, the value of improvements/repairs, estimated closing costs, buyer-paid discounts, and mortgage insurance (if applicable). (The lender will fill in much of this information.)
An inventory of any judgments, liens, past bankruptcies or foreclosures, pending lawsuits, or delinquent debts. You’ll also be asked to state whether you’re a U.S. citizen or permanent resident and whether you intend to use the home as your primary residence.
Most home sellers will be more willing to negotiate with those who have proof that they can obtain financing.
A favorite formula of the personal lending world, your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. To be more specific, it is the percentage of your gross monthly income (before taxes) that goes towards your monthly payments for housing, credit cards, and other debts you may carry.
3. Compare loan offers
Once you submit your information, you may receive some information if you prequalify, such as …
- Loan amount you may qualify for
- Estimated monthly payment amount
- Estimated interest and fees
- Estimated annual percentage rate, or APR
- Loan term
Again, it’s important to remember that these are potential offers and tentative rates and terms. You’ll get definitive information about the loan a lender’s willing to offer you only after you formally apply directly with the lender.
Things to consider
When you’re reviewing your loan options, be sure to compare …
- APR — This is how much it will cost you to borrow money, including the interest rate and any potential fees. Learn more about APR and why it’s important.
- Loan term — Generally, loans with a longer term have a lower monthly payment. But they could cost more in interest in the long run.
- Origination fee — Some lenders charge this fee for making a loan.
All of these factors can affect the total cost of your personal loan.
Tips for speeding up the process
If you’re looking for a personal loan, you likely want to get your hands on the money as soon as you can. These tips can help you avoid delays when applying for a personal loan”
- Check your credit report before applying. Know where your credit stands before shopping around for personal loans. Good credit can make it easier to qualify for a personal loan at a lower interest rate. Furthermore, spotting and correcting errors immediately is a simple way to avoid issues later on when you’re applying for a loan. Pay off debt. If you have debt and you don’t need the loan funds urgently, paying some debt off can raise your credit score and lower your DTI ratio, which can increase your chances of approval.
- Talk to your existing financial institution. Banks and credit unions might be more willing to consider a personal loan application from a customer with whom it’s had a positive, long-standing relationship.
- Get prequalified. Some lenders have a prequalification process that you can undergo without a hard credit check. You can also get an idea of what your loan rates and terms may be before you apply to determine if moving forward with the lender is worthwhile.
- Consider online lenders. Many online lenders offer next-day loan decisions, and funds may be deposited into your bank account within a few days after applying if you are approved.
- Pick loan funds up in person. If your lender has a brick-and-mortar location, ask if there is an option to pick funds up at the branch so you can get the money faster.
Before Getting A Personal Loan: What To Know
We are going to be honest, getting a personal loan isn’t easy. There are a lot of things you need to consider before you apply for a personal loan.
The first, and most obvious, is to decide how large a loan you actually need. This might seem like a ridiculous tip to include, but it’s important enough to reiterate.
Before you apply for your loan, sit down and calculate how much money you will need. That amount will impact the type of loan you pursue.
Secured vs Unsecured Personal Loans
Understanding the differences between these two types of loans is critical as you decide your goals and shop for rates.
A secured loan will usually give you lower interest rates, but you have to put something up as collateral. If you don’t pay back the loan, they take your collateral. While unsecured loans don’t require any collateral, they will have higher interest rates.
Personal Loan Requirements
Just about every loan is going to require basic information like address, birthday, and social security number. You will also need employment information, like your work history and pay stubs to verify your income. You will need to provide other sources of income like alimony.
Depending on the loan type and amount, the lender may ask for other documents like a copy of your W-2 and tax information, as well as proof of address, bank statements, and your mortgage or rent statements.
Once you understand the basics, you should spend some time researching the different loan types, examining which might work best for you. There are several different ways to get a personal loan, and not every type will be a good fit for your situation.
Fully understand the type of loan you are getting, the loan period, the payment methods, payment amounts, and any other important information.
Our standards for Debt-to-Income (DTI) ratio
Once you’ve calculated your DTI ratio, you’ll want to understand how lenders review it when they’re considering your application. Take a look at the guidelines we use:
35% or less: Looking Good – Relative to your income, your debt is at a manageable level
You most likely have money left over for saving or spending after you’ve paid your bills. Lenders generally view a lower DTI as favorable.
36% to 49%: Opportunity to improve
You’re managing your debt adequately, but you may want to consider lowering your DTI. This may put you in a better position to handle unforeseen expenses. If you’re looking to borrow, keep in mind that lenders may ask for additional eligibility criteria.
50% or more: Take Action – You may have limited funds to save or spend
With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.
Can you get approved for a loan with a bad credit score?
The short answer: yes, but it’s harder.
The slightly longer answer: every lender has slightly different criteria, based on what they think a “good” borrower looks like. One lender might be comfortable with you having a few credit cards, but might see a short address history as a huge red flag – and another lender might have completely the opposite view.
Because different loan companies look for different things, it may well still be possible for you to be approved for a loan even if you have a bad credit score, but you’ll probably have to work harder to find a provider that’s willing to accept you, and will almost certainly pay a higher rate of interest.
The silver lining is that the surest way to improve your credit score is to always make your loan repayments on time, so you’ll actually be building your credit score in the process. For more information on how this works, you can read our guide to how a personal loan affects your credit score.
The other option is to find a lender who uses Open Banking rather than basing their decision solely on your credit history. For example, Koyo offers flexible personal loans of up to £7,500 with a representative APR of 27%.
Related article: Thinking about your next car? Our guide on how to get a car loan with a bad credit is full of insider tips, covering car loans, HP, PCP and lesser-known alternatives.
Get Preapproved Online
If you’re looking to get approved for a mortgage, Rocket Mortgage® can help. Rocket Mortgage offers a couple of different approval options:
- Our Prequalified Approval is the fastest way to get approved with Rocket Mortgage. Simply apply online and allow us to check your credit. You won’t be required to provide any documents, but you should come prepared with information about your income and assets. You’ll have the option to sync your application with your bank accounts so we’ll know exactly how much you have available for your down payment and closing costs.
- Our Verified Approval is a great way to strengthen your offer. To get one, you’ll need to apply with Rocket Mortgage and then contact a Home Loan Expert. We’ll do a full verification of your income, assets and credit so sellers can be certain you won’t run into financing issues. To get started with either approval option, apply now on Rocket Mortgage.
Here’s how it works:
Step 1: Apply And Check Your Credit
Our online application asks you a series of questions to evaluate your eligibility for a home loan. You’ll give us information about yourself, the home you want to buy, your income and your assets. From there, we’ll check your credit so we can offer you accurate mortgage solutions.
Step 2: See And Customize Your Mortgage Solutions
See your recommended mortgage solutions and adjust your numbers to fit your budget. This is where you’ll see how much we can approve you for, as well as recommended types of home loans, down payments, monthly payments and interest rates.
Step 3: Get Your Approval Letter
Once you’ve chosen your mortgage option, you can see if you’re approved for it. From there, we’ll give you a Prequalified Approval Letter that you can use to shop for homes. For an even stronger approval, you can contact a Home Loan Expert to get a Verified Approval.
Qualifying Through Your Bank Or Credit Union
It’s becoming increasingly difficult to qualify for a personal loan through your bank or credit union, especially if you want a larger amount, but it is possible to get a reasonable loan if you meet the requirements.
Unsecured Personal Loans
Unsecured personal loans are great if you lack the collateral needed for a secured loan. Due to the enhanced risk the lender takes on, unsecured loans come with higher interest rates and steeper credit score requirements. You can also expect to find short loan terms and smaller amounts of funding available.
Once again, LendingTree can unlock all of your options, presenting you with a comparison of your top options for unsecured personal loans. It will give you access to banks, but also online lending sources.
If you are a good customer and have good credit, you could get a “signature” loan for $3,000 to $5,000. These loans, also called “character loans,” are offered through banks. To give you an idea, you’ll probably need above 700 if you want to even be considered for an unsecured personal loan).
Secured Bank Loans
Most personal loans are going to be unsecured; however, there are a number of unsecured loans available for personal financing needs. If you want a bigger loan, you’ll need a personal one, and you will need to jump through some hoops.
You will need to fill out a loan application and designate collateral. The collateral you offer for a personal loan might be your car or a savings account.
While secured loans typically come in the form of auto loans or mortgages, you can find a number of secured loans from banks, credit unions, and lending companies.
A secured loan will likely give you access to bigger loans and far better interest rates, and the credit score requirements might be less stringent.
Lenders impose income requirements on borrowers to ensure they have the means to repay a new loan. Minimum income requirements vary by lender. For example, SoFi imposes a minimum salary requirement of $45,000 per year; Avant’s annual income minimum requirement is just $20,000. Don’t be surprised, however, if your lender doesn’t disclose minimum income requirements. Many don’t.
Evidence of income may include recent tax returns, monthly bank statements, pay stubs and signed letters from employers; self-employed applicants can provide tax returns or bank deposits.
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What Credit Score Do You Need To Buy A House? Home Buying – 5-minute read Victoria Araj – July 18, 2022 Credit plays a big role in getting a home loan. Learn what credit score you’ll need to buy a house, and which loans are best for certain credit ranges. Read More
Mortgage Preapprovals Vs. Prequalifications: Which Should You Get? Home Buying – 5-minute read Victoria Araj – July 29, 2022 Not sure of the difference between mortgage prequalification and preapproval? Find out everything you need to know right here. Read More
How Much House Can I Afford? How To Assess Your Finances And Calculate What To Spend Home Buying – 10-minute read Miranda Crace – July 14, 2022 Home buyers often wonder how much house they can afford. Learn more and use our home affordability calculator here. Read More
Personal loan rates
Below are the average APR rates you may see based on your credit score. Keep in mind, the better your credit score, the higher your average APR rate.
|Personal loan APR rates by borrower credit score|
|Credit score range||Average APR rate|
|Less than 560||156.11%|
Source: LendingTree customer data for Q1 2021.
Hopefully, you’ve found this guide useful. If you have any questions, let us know in the comments section below.
And if you’re ready to start applying for a loan, Koyo offers flexible personal loans of £1,500-12,000. You can take a look at our loan calculator or make an application at www.koyoloans.com. Representative APR 27%.