Getting Pre-Qualified for a Mortgage
One of the first steps to take as a potential home buyer is to get pre-qualified for a loan. This step helps both you and your lender learn just how much home you can afford. And you should begin this process before you even start looking for a home.
According to the Federal Housing Administration (FHA), their pre-qualification essentials include:
- Having a steady employment history, at least two years with the same employer.
Other lenders' ideas regarding pre-qualification are all similar to those outlined above. A mortgage lender will look at your credit report, earnings, debts, and savings in order to see how much home you really can afford.
Why is this important?
In recent years there has been a “mortgage crisis,” where the industry was rampant with fraud
and with loans that put homeowners into situations they could not afford. As payments rose, homeowners found themselves unable to meet their monthly obligations. According to Realtytrac.com and their U.S. Foreclosure Market Report, in January 2010, one in every 409 households in the country had received a foreclosure filing.
Since pre-qualification for a home loan typically costs you nothing, but gives you both a goal of what homes are in your affordability range, as well as how much money you should look to have saved for a downpayment, you can hardly wait to take this step.
What if the home you want is out of your reach? Experts recommend reducing your debt and saving up a larger amount for your down payment. Let's say your dream home is $225,000, but you only qualify for a $180,000 loan. If you have a downpayment of $45,000, then you are ready to make a move!
During the pre-qualification process, you will be expected to provide the following information:
- your gross monthly income
The lender will be looking to see that your debt to income is below about 40 percent, and the lower the better. So, if you are looking to buy in the near future, be sure to talk to your lender soon!