Mortgage

How and Why to get Pre-qualified

WHY-

Assume two buyers make an offer on the same piece of property. Buyer A offers $223,000 and is qualified to $225,000. Buyer B is offering $225,000 predicated on his ability to obtain financing. The seller has the option of:

selling the house to Buyer A and going forward with their plans.
accepting Buyer B’s offer and notifying all potential buyers that the house is under contract.
If the seller accepts Buyer A’s offer, the house is sold. If the seller accepts Buyer B’s offer he must put his life on hold and hope that Buyer B is able to obtain financing. If Buyer B is unable to arrange financing the seller will have to put the house back on the market and wait for another buyer.

HOW-

Mortgage lenders will pre-qualify a buyer in the hope of getting their business. Mortgage lenders follow some guidelines when determining a credit limit for a home buyer. The following are some general guidelines that will give you a general idea of what you can afford.

The amount of gross income that can be used to pay housing expenses is normally 28%, but can go higher in some circumstances. Housing expenses are defined as principle and interest payments, property taxes, and homeowners insurance. If you pay less than 20% down you may be required to add the cost of mortgage insurance (PMI). If you divide your mortgage by 2400 you will come very close to your monthly PMI insurance premium.

The amount of gross income that can be used to pay all debt service (including housing and PMI insurance) is normally 36%, but can run as high as 41% for VA loans.

(Note: Gross Income is what you earn, not what you take home after tax.)

Some factors that a lender may consider is the amount of your down payment, your work record, your credit history, and a spouses ability to contribute additional income if it should become necessary.

If you are seriously thinking about homeownership and you want the Realtors® and sellers to take you seriously – always get pre-qualified. Pre-qualifying should be done by a lender in the area where you hope to buy. I work with several lenders and would be happy to supply you with a list in order for you to choose one that is right for you.