One of the first steps to take as a potential home buyer is to get pre-qualified for a home 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, covering at least two years.
Consistent or increasing income over the past two years.
Credit report reflecting a good repayment history with creditors.
Any bankruptcy must have been discharged at least two years prior (one year for a Chapter 13), with good credit since the discharge.
Any foreclosure must have been completed at least three years prior, with good credit since the completion of the foreclosure.
Mortgage payment – including taxes, homeowners insurance, mortgage insurance, and HOA dues (if applicable) should be no more than approximately 30% of your total gross monthly income.
Total monthly debt payments should not exceed approximately 45% of total gross income.
To determine pre-qualification, mortgage lenders will look at your credit report, earnings, debts, and savings in order to see how much home you really can afford.
Why is pre-qualification important?
Pre-qualification for a home loan typically costs you nothing, but gives you 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.
During the pre-qualification process, you will be expected to provide the following information:
Your gross monthly income
Your total monthly payments (car payments, credit cards minimums, child support payments, student loan payments, any other monthly debts)
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. *By refinancing an existing loan, total finance charges may be higher over the life of the loan. *Information is for general illustrative purposes only. The information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. *Typically, a non-purchase second mortgage. **Please consult your financial advisor on the consolidation of short term debt into long term debt.