It is everyone’s dream to own a home. In order to carry out this dream, so much energy, time and effort could be wasted by rushing around hunting for properties that are not in your price range. Much frustration and disappointment can be avoided by taking the time to find out what is your exact price range, meaning the home you can afford. A pre-qualification can help you determine this.
A pre-qualification is an informal discussion between you and your mortgage lender. The lender estimates the amount that they could allow you to borrow solely based on your information about your income and assets.
You must submit the following to get pre-qualified:
1. Secure a referral for a mortgage lender or broker from friends or relatives and even colleagues.
2. The following information are need for pre-qualifying such as your gross monthly income and total monthly payments for cars, minimum monthly fees for your credit cards, child support and whatever payments you have to make per month.
3. Either you or your mortgage lender can add all your debts and compare the amount to your income to come up with a total debt-to-income ratio. The percentage should be below thirty-six for the best rate of interest. The lower the number, the better for your to qualify.
4. Give your lender an authorization to get a copy of your credit report. The report includes your FICO score, which is the credit scoring system widely used by lenders. A score of 680 and above is considered as an excellent credit score with good ratios and other positive factors should be able to give you the best interest rates.
5. Get the lender to prepare a prequalification letter for you. The letter should state that your initial credit and financial information were reviewed and look good; however, it will also state that it is not a sure guarantee of a loan.
It is important to put into consideration that a pre-qualification letter is one of the simplest documents from the mortgage lender. This letter does not bind the mortgage lender to a loan for a home sale. This determines your likelihood of securing a loan, but all your documents submitted during a pre-qualification are still subject to verification by the mortgage lender.
As soon as you find a home and are ready to make an offer for it, secure a prequalification letter from the mortgage lender only for the loan you are seeking. You need not use the same lender who prequalified you; you could shop around and compare their rates.
A prequalification is not the same as the preapproved. In a hot market, you have to be approved for a loan before you make a home offer. The prequalification process is only one way of knowing how much you can afford to buy a home. It is an estimate of your capacity to purchase. However, after you have secured a prequalification letter, have hunted for a home, and found the perfect one, the next step you have to do is to proceed to getting a pre-approval for your home purchase. This provides more security for you to be able to buy the home and at the same time will give the seller confidence that you could afford to buy his or her property.
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