Home Buyer's Guide:
Home Loan Pre-Qualification
Many buyers apply for a
loan and obtain approval before they find the home they want to buy.
Pre-qualifying
will help you in the following ways:
-
Generally, interest
rates are locked in for a set period of time. You will know in advance
exactly what your payments will be on offers you choose to make.
-
You won't waste time
considering homes you cannot afford.
Pre-approval
will help you in the following ways:
-
A seller may choose to
make concessions if they know that your financing is secured. You are like a
cash buyer, and this may make your offer more competitive.
-
You can select the best
loan package without being under pressure.
HOW MUCH
CAN YOU AFFORD?
There are three key factors to consider:
DOWN
PAYMENT REQUIREMENTS:
Most loans today require a down payment of between 3.5% and 5.0% depending on
the type and terms of the loan. If you are able to come up with a 20-25% down
payment, you may be eligible to take advantage of special fast-track programs
and possibly eliminate mortgage insurance.
CLOSING
COSTS:
You will be required to pay fees for loan processing and other closing costs.
These fees must be paid in full at the final settlement, unless you are able to
include them in your financing. Typically, total closing costs will range
between 2-5% of your mortgage loan.
QUALIFYING
FOR THE MORTGAGE:
Most lenders require that your monthly payment range between 33-38% of your
gross monthly income. Your mortgage payment to the lender includes the following
items:
-
The principal on the
loan (P)
-
The interest on the
loan (I)
-
Property taxes (T)
-
The homeowner's
insurance (I)
Your total monthly PITI and
all debts (from installments to revolving charge accounts) should range between
33-38% of your gross monthly income. These key factors determine your ability to
secure a home loan: Credit Report, Assets, Income, and Property Value.
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