Pre-qualifying for a loan makes you an appealing buyer in the eyes of the seller. It states that you have conversed with a lender and verbally appear to be able to purchase a home up to a certain amount.
Pre-approval is even stronger than pre-qualifying and is a “must” in our current market; it means your papers and all relevant documents have been submitted with a lender and it actually approves you for up to a certain mortgage amount, even before you look at your first home. Once you do start looking, you won’t waste time looking at homes you won’t be qualified for-and you’ll be in a stronger position to make an offer as soon as you find something you like.
Selecting the best financing package available is as important as finding a home that meets your needs.
There are three factors to consider in determining how much you can afford:
- Down payment
Most loans require a down payment between 10 and 20 percent of the home price. If you are able to make a down payment of 25 percent or more, you may qualify for special mortgage programs offered by a variety of lenders.
- Ability to qualify for a mortgage
Most lenders require that your monthly mortgage payment, including principal, interest, taxes and insurance, should not exceed 28 percent of your gross monthly income. They also expect your total installment debt (regular scheduled payments of 6 months or longer debt-car loans, credit card balances, etc.), including the proposed monthly mortgage payment on your new loan, not to exceed 36 percent of your gross monthly income.In addition to your gross monthly income, lenders review your employment history, stability, and potential for increasing your income. They also evaluate any additional income, such as bonuses, commissions and child support.
They will request a credit report to verify your debt repayment, outstanding debt, and available credit. They will calculate your assets, including checking and savings account balances, CDs, stocks and bonds.
Avoiding any late payments on credit accounts, and limiting your credit purchases, helps keep your credit report in good standing. If you have items on your credit report that could negatively influence your ability to secure a mortgage, be prepared to explain each situation in writing. You should also consider delaying major purchases until after you’ve moved into your new home.
- Closing costs
Closing costs typically range between 1 and 5 percent of your loan amount. These fees are due in cash at the time of closing, or, in some cases, can be included in the loan.
Pre-qualification is always a good idea.Pre-approval through a reputable lender is much better. I can help you find a good lender with an excellent track record.
Taking the time to become pre-approved, for a mortgage before you begin your home search will put you in a much better negotiating position: your pre-approval assures the seller that the transaction will not be delayed while you secure financing. Better yet, get your financing pre-underwritten.
If you would like to learn more about financing options immediately, please contact us.