Mortgage ABCs: Getting Pre-Qualified For a Mortgage Loan

Getting Pre-Qualified For a Mortgage Loan - The Tuttle Group

Getting a pre-qualified loan for a mortgage is an important step when buying a home. The process varies slightly by the mortgage company. However, there are some basic ABCs that you will want to follow.

Affordability: What Can You Afford?
You have to determine what you can afford regarding a housing payment. This includes not only the mortgage payment but also the home insurance, taxes, and any HOA fees that might be due on the property.

Banks used to use gross annual income as the primary factor. If your house were no more than three times the income, then it would be considered affordable. This is no longer always the case as a result of debt and other expenses.

The debt to income ratio is the mortgage qualifying factor in most instances now. This is where you will add up all of your monthly installment payments:

  • Car payments
  • Student loans
  • Credit card debt
  • Store card balances

Once you add everything up, divide it by your income per month. If it is less than 35%, then you are more likely to qualify for a mortgage.

Bankruptcies & Big Debt: How Much Do You Have?
If you have had a bankruptcy recently, it is going to hurt your chances of getting a pre-qualified loan for you home. Most finance professionals suggest that you try to rebuild your credit for at least three years before attempting the mortgage qualifying process.

Additionally, if you have any significant debt, you might have to work to get it down before you go through the approval process. Some debt, such as what might belong to an ex-spouse, could be on your credit. However, if you have divorce paperwork or anything else that explains that you are not financially responsible for the debt, you should have it close to providing to the mortgage lender who is handling the pre-qualifications.

Credit: How Good is It?
Your credit score will also be a key element to getting pre-approved for a mortgage. Not all borrowers have the same definition of a “good” credit score. As such, your credit should be high enough to fall within the acceptable range for multiple borrowers.

In addition to the score itself, the borrower will look at how many accounts you have open, if there have been any late payments, and if you are too close to the credit line.

Before going through the mortgage qualifying process, try to close up any accounts that are no longer in use. It will help to streamline the process. If there have been problems with any accounts, be prepared to provide an explanation.

Getting pre-qualified for a mortgage loan is a time-consuming process. When you have a good debt-to-income ratio and a high credit score, it goes smoother. Take some time to clean up your finances before going through the process.

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