If you are in the market to purchase a home the most important thing to know is how much home you can buy which will be determined through qualifying for a mortgage. There are two commonly used terms that are related to qualifying for a mortgage; the first of which is a pre-qualification and the second is a pre-approval. One of the best things you can before shopping for a new home is to get pre-qualified for the purchase through a mortgage broker. Your pre qualification will be welcomed by realtors because it lets them know that you are serious about buying, know how much you can afford, and have done your homework. It will also make you more attractive as a buyer because the seller and their agent because will know that the mortgage process will be short, eliminating one factor in completing the sale.
- Pre- Qualification – A pre-qualification is done based on your statements about income and expenses as well as your financial situation that gives you a good idea of how much mortgage you can afford.
- Pre-Approval – A pre-approval is more involved and includes pulling a credit report and reviewing all of your income and expense information, as well as your assets to approve you for a specific dollar amount.
Most people find the mortgage process frustrating and confusing because there are many factors to qualifying for a mortgage.
There are several key components to getting qualified for a mortgage:
- Income – you will need you last two years if W-2 statements and a recent pay stub to show your income which will determine the amount of mortgage you can afford.
- Credit Score – This is critical part of the process because your credit score (also known as FICO Score) will determine what type of mortgage you qualify for and the interest rate you will pay. People with higher credit scores (780 or higher) are viewed differently by lenders than people with lower credit scores (640 or below).
- Credit Report – This will list the debts you currently have like a car loan, credit cards, etc. along with the monthly payment. These monthly payments will be counted in the calculation of your mortgage qualification. The higher the monthly payments you have, the less money is left over for a mortgage payment.
- Downpayment – The amount of money you have for a down payment will determine what type of mortgage you can qualify for. Typically people with small down payments (3-5%) will end up with a government backed FHA loan that requires very little down payment. You will also need to have bank statements or investment account statements that verify the money to be used for the down payment.
Northeast Financial is an independent mortgage company with access to multiple lenders and many different loan programs to suit your needs. Feel free to call or email with any questions, I am here to help!