PRE-QUALIFYING FOR A MORTGAGE

One of the first and most important steps one must take as a potential home buyer is to get prequalified, or preapproved for a home loan. This critical step will inform you of just how much home you can afford. It also gives the lender time to address any potential areas of concern in securing your final financing.

You should begin getting prequalified before you even start looking for a home.

It is important to note that there is a wide variety of programs available in the marketplace. Identifying which program you are looking to be preapproved for is an important question that your loan officer can help you answer. There is a wide variety currently available; which include, but are by no means limited to: agency home loans (Fannie and Freddie), non-agency home loans, FHA home loans (Federal Housing of Administration), USDA home loans (United States Department of Agriculture), VA home loans (Veterans Administration), portfolio home loans, private money loans, etc… Once determined, you can begin discussing the type of home loan you would like to secure. These include fixed mortgages, adjustable rate mortgages, etc…
The preapproval requirements vary slightly, but the process to complete preapproval is relatively one and the same.

Here are the primary points that must be considered:

- Steady employment with a two year history demonstrating consistent or increasing income over          the two year history.
- Credit should be in good standing which includes no late payments on outstanding mortgages or            rental payments made to your landlord.
- Any bankruptcy on record should be at least two years old, with good credit for at least two                          consecutive years.
- The mortgage payment you are looking to qualify for should be about 30 percent of your total gross    monthly income.
- Assets after closing should total a minimum of two months principle, interest, taxes, and insurance.

This information will be reviewed by your loan consultant to determine what you qualify for and can really afford. Once the review is completed preapproval letters can be issued up to the ceiling purchase price you qualify for. All things considered generally speaking a preapproval can be completed typically within an hour of receiving the information required.

Preapproval does not cost anything, but is truly worth its weight in gold.

It gives you a range of affordability and well as how much you must save for a down payment. Should you find a home that is outside this price range, the solution is saving a larger down payment, reducing your current debt and the monthly obligation associated with that debt, and or buying down the interest rate. Often times a combination of these three solutions is implemented to get a homeowner into a home that is currently outside their price range.

Preapproval is a critical step that many people do not look to accomplish early enough in the home buying process. This is a step that should not be overlooked. Sooner is better than later.