Your
home isn't the biggest purchase
you will ever make. Your mortgage is.
Please
feel free to call us at 770-509-7827 and a Mortgage
Specialist will answer any questions
you may have about getting
Prequalified or Pre-Approved with no obligation and no pressure.
Our expertise is free.
THE
BOTTOM LINE
A "Pre-Approval" is
better and more accurate than being "Prequalified." We have
chosen not to provide a fill-in-the-blank form to provide you
with an estimate of the loan amount you may qualify for because
there are simply too many variables to provide an accurate
picture using a short form or calculator program. As you read
this section you will see there are a number of variables which
should be taken into consideration to determine an accurate
loan amout. Additionally, an incorrect prequalified loan amount
may lead you to look for too little, or too much house, both
of which lead to lost time, and potentially a declined application.
We
prefer the old fashioned method of asking detailed questions
about your circumstances, providing you with a variety of programs
suited to your situation, and giving you specifics that you
can use to make an informed, intelligent decision. To give
you the best information possible, we can Pre-Approve you for
your loan so you'll know exactly how much house you can afford.
Here
are some things you should know before you get started. [BACK
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PREQUALIFIED
VS. PRE-APPROVED
Should I
ask a lender pull my credit to get Prequalified or Pre-Approved? You
should authorize a lender to pull your credit only if
you have selected that lender to be your lender for the
transaction. If you are still shopping around you may
want to wait to have your credit report pulled. Why?
Every time a lender pulls your credit it can lower your
credit scores which could potentially affect your approval
or interest rate. [BACK
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What's
the difference between getting Prequalified and Pre-Approved? At
one time these terms meant essentially the same thing, however,
with today's technology there is a meaningful difference.
Getting prequalified usually involves a discussion of the
primary parameters of your situation including:
Prequalifying gives
you an estimate of the loan amount you would be approved for.
There are a number of variables (which are discussed below)
like debt-to-income ratios, credit scores, type of loan program,
down payment percent, etc. which can have a significant impact
on how much home you qualify for. Prequalifying uses standard
guidelines to determine the loan amount you would qualify for.
Getting
a Pre-Approved is a more detailed process which generates
a more specific result. Getting Pre-Approved requires a credit
report, a completed a loan application, a decision on a specific
loan program and submission of the information directly to
a lender, or to Freddie Mac or Fannie Mae (online) to get an
initial decision. Freddie Mac or Fannie Mae approvals have
more flexibility because they can be used at almost any lender
since lenders follow these guidelines in their underwriting
decisions
Getting
Pre-Approved is much more accurate than getting Prequalified
for another important reason. When being Prequalified it is
common to use standard underwriting guidelines and ratios.
However, loan approvals are much more complicated and sophisticated
than in the past due to the introduction of technology used
in making these decisions. A Pre-Approval gives you specific
information based on all the primary variables.
IMPORTANT: The
Pre-Approval is not a final approval because it is subject
to verification of the facts stated on the loan application.
Also, after getting Pre-Approved, it is strongly recommended
that you do not apply for any other loans or have your credit
pulled by any other lender until your loan closes. Lenders
reserve the right to look at your credit report one last
time a couple of days prior to closing to make sure nothing
has changed. [BACK TO
TOP]
GENERAL
INFORMATION
INCOME
Income
stability is an asset in the approval process as it indicates a
stable environment in which income is likely to continue. Moving
from one job to another where income and responsibility are increased
is not considered a negative factor. On the other hand, if there
are long gaps between employment and the income history shows a
pattern of decline, this could affect your approval. This alone
may not cause your loan to be denied, but it is less likely that
other factors, like higher debt-to-income ratios, will be given
much flexibility.
Ideally, lenders like to see an employment history of 2+ years with the same
company or in the same line of work. If you have been in an industry for several
years, but have less than 6 months on your current job, this will not be looked
upon unfavorably.
If
you are self-employed or receive a commission, this income
must be documented over the previous 24 month period and
the monthly average will be used as your income. Lenders
require both personal and business tax returns to document
your income. Your net income is used for qualifying, not
your gross income. However, there are some deductions which
can be added back to the net income to arrive at a higher
income which is accepted according to standard underwriting
guidelines. One of our Mortgage Specialist will be glad to
discuss this with you. We will review your tax returns to
provide you with more specific information if needed. [BACK
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CREDIT
REPORTS/HISTORY/SCORES
Credit reports
track a 7 year history of your credit accounts and a
2 year history of all inquiries. Credit bureaus collect
information from retailers, banks, finance companies,
mortgage lenders and a variety of public sources that
use any type of credit, including credit cards, car loans,
mortgages, personal loans and charge accounts. The credit
score is based on a statistical analysis of your credit
history. Factors that determine your credit score vary
from company to company, but generally include:
The
credit score most lenders use is the FICO score. FICO scores
range from 400 to 850, with higher scores being better. Statistically,
the higher the score, the less likely there will be a default
on a mortgage.
Most
lenders require a "tri-merge" credit report consisting of
credit information form three different credit rating agencies
such as Experian, Equifax and TransUnion. This helps ensure
they will not miss any information.
For
revolving credit accounts, lenders calculate 5% of the current
outstanding balance to use as a monthly payment unless it
is reported otherwise on the credit bureau report. For example,
an outstanding balance of $2000 on a Visa card would mean
a $100/month payment would be used in calculating the qualifying
ratios. [BACK
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QUALIFYING
RATIOS
Standard
ratios used for qualifying purposes are 28% for housing
and 36% for total indebtedness (also called Debt-to-Income
Ratio, or DTI). These percentages are calculated by
dividing the proposed mortgage payment by the gross
income (net income for self-employed) to get the housing
ratio; and by dividing the total of all payments (including
the new mortgage) by the gross income (net income for
self-employed) to obtain the total debt-to-income ratio.
For
example, if your income is $5000/month, the new house payment
you would qualify for is calculated at 28%, or $1400/month.
This number includes principle, interest, taxes, hazard insurance,
PMI (if applicable) and homeowner's fees. (Although most
homeowner's fees are paid annually, for underwriting purposes
they are divided into monthly payments and included in your
ratios.) If there are compensating factors and you were approved
for a 35% housing ratio, it would translate into $1750/month
house payment….a 25% increase!
By
including other compensating factors such as high credit
scores, long term job stability and significant cash/savings
reserves, ratios as high as 50% may be approved. This could
make a significant difference in the loan amount you could
qualify for. [BACK
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TYPE
OF LOAN / INTEREST RATE
Obviously,
the lower the interest rate the more house you can
qualify for, if the term of the loan remains the same. Adjustable
rate mortgages which have lower start rates also allow
you to qualify for a home that is 10-25% larger. Since
some adjustable rates are fixed for the first 7 years
they make an ideal loan for many people who plan on
moving away or moving up before the initial period
ends. Purchasing a larger home also lets you get more
appreciation from your asset, making it a better investment. [BACK
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Please
call us at 770-509-7827 and a Mortgage Specialist will
answer any of your questions with no obligation and no
pressure. Our expertise is free.
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