Are You Pre-Qualified For Your Home Loan?

The Importance of Being Pre-Qualified

Why is it so important for Buyers to be pre-qualified BEFORE you start looking for your next home? It could cost you your dream home if you're not.

When it comes to purchasing a home, many people will start looking at real estate ads, driving around neighborhoods, peeking in windows of vacant homes, and dreaming about finding the perfect home to move into. It's magical, exciting and kind of scary since they have no clear idea where to start. They just want to pick out a home and buy it. Sounds simple enough. Right?

Buying a home in today’s market can be a challenge. With many short-sales and foreclosures up for sale and many buyers wanting to take advantage of low rates and great prices, it is a mad, mad world in real estate right now. Just getting an accepted offer is tough these days. So you really do want to improve your chances by presenting a strong case. What makes a strong offer? An approved buyer. You will be best served by getting yourself aligned with some savvy real estate professional (like the one who sent you this article), who can guide you through the process from the beginning and help you arrive at the finish line – a closed escrow, and keys to your new home.

Strengthen your buying power by getting pre-approved for a home mortgage. Pre-approval and pre-qualified are not the same thing. Getting pre-qualified is easy and will get you started in the home-buying process. Before you start looking at homes, your mortgage advisor will need to know your monthly income, length of time on a job and how much of your monthly income goes towards paying debts. This is called the debt to income ratio. There is a standard rule of a maximum top and bottom number which is just as important as your fico score on your credit report. The debt to income ratio varies with the type of loan product you will be getting. For example for a conventional loan the standard ratio is 28/36. It may be slightly higher for FHA or VA loans.

The first number is the maximum percentage of your gross monthly income that the lender will allow for housing expenses. The total includes payments on the mortgage loan, mortgage insurance, fire insurance, property taxes, and homeowner’s association dues. The second number includes your housing expense plus any recurring debts such as credit card payments, auto loans, child support or any other long term obligations.

Next, your mortgage advisor will need to determine your loan to value ratio. They need to know how much cash is available to cover any down payment, closing costs or prepaid items such as taxes and insurance and how much cash reserves will remain in your accounts after your purchase. This will also help you determine the kind of loan program that is best for you. Some loan programs allow the seller to pay a percentage of the closing costs and there are also home buyer assistance programs available.

Now, with the guidance of your mortgage advisor, you are ready to decide what type of loan you will be getting, such as FHA, VA, Conventional; your interest rate, down payment, and how much cash you will be bringing to the closing table.

Your mortgage advisor will issue a pre-qualification letter for you to give to your real estate agent. This will let the real estate agent know that not only are you serious about buying a home but that you qualify and you are able to close the escrow. It will also help your real estate agent when they present an offer to purchase a property on your behalf.

The seller may have more than one offer on a particular property and when this happens the seller will look at each offer and consider the down payment amount and the type of financing that the buyer is getting. The seller is usually most interested in choosing a buyer who can close the transaction. Presenting a buyer with and approved loan will help seal the deal and put you on the path to being a happy homeowner.

This article appeared in the March Edition of the Coldwell Banker Select Real Estate E-Newsletter
Provided by: Chrystina Tovani at Stanford Mortgage

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