Can I qualify for a home loan?
first step in buying a home is to get preapproved for a mortgage. The
mortgage lender will analyze your annual income, your credit history,
and credit score. Lenders
use a calculation called debt to income to estimate the ideal mortgage
payment. Debt to income
is a comparison between your monthly income and monthly debts. After
providing the mortgage lender with your financial information, the lender
will decide which mortgage loan is best suited for you.
Difference between prequalified and preapproved
When you meet with a real estate agent, he or she will ask you if
you have been pre-approved or pre-qualified. The reason of course is
that the real estate agent does not want to spend time with an unqualified
home buyer; and needs to know your price range.
Is there a difference between pre-approval and prequalification?
There sure is. When a lender pre-qualifies a prospective home buyer,
he or she will ask basic eligibility questions, like, “how much do you
earn”, “how much do you pay out monthly and how much cash are you working
with”. Pre-qualification is nothing more than a light discussion of
the monthly income, monthly bills and available assets. A pre-qualification
interview expresses the “opinion” of the loan officer about the likelihood
of obtaining a mortgage and the estimated price range. Pre qualification
does not mean pre approval!
What does pre approval for a mortgage mean?
Pre-approval involves an in-depth investigation of an applicant’s
finances and includes documenting the home buyer’s income, assets and
a review of the home buyer’s credit report. The mortgage lender will
ask to see the home buyer’s paystubs for the previous 30 days, bank
statements for the previous 2 months, and will order a credit report
from the three largest credit providers. Depending on the type of employment,
the lender may request to see the income tax returns for the previous
Who approves your mortgage? Did you know that a computer makes the
decision? Lenders use a software program called "automated
underwriting" and it can be used for pre-approval.
All income that is received may be considered in the pre-approval, including
child support, alimony, pension, retirement distribution, and social
security; provided the income is likely to continue for several years.
All income sources require thorough documentation.
includes credit card payments, auto loans, alimony and child support
payments, and student loans. Obligations with less than 6 - 10 months
(depending on the loan program) are typically ignored in the
debt to income analysis.
Bankruptcy, divorce, and child support settlement agreements will
have to be provided to the lender.
The pre-approval process is a pretend
mortgage application. A good pre approval puts you through the wringer
before you look for a home and gives you and the lender time to work
through any problems like an outstanding judgments or collection account(s).
It’s not unusual to have a late payment on your credit report, even
if you pay your bills on time. Creditors and computers do make mistakes
and do not always post the monthly payment as on time. Think of the
pre approval as a financial checkup with all the tests.
Determining the buyer’s monthly income can be more art than science.
Some home buyers are paid monthly, semi-monthly, or weekly and earn
the same amount each pay period, however, arriving at monthly income
when the number or hours changes from pay period to pay period can be
challenging for the loan officer. If you have irregular income or have
multiple employers, you definitely need a complete preapproval. Mortgage
lenders want to see a continuous work history within the same line or
work for 24 months.
Self-employed applicants are thoroughly investigated. The reason is
because the applicant is the employer and has the ability to manipulate
earnings (and losses). Undoubtedly, mortgage lender will want to see
the previous two years income tax returns and possibly a year to date
profit and loss statement from a certified accountant.
Do you have rental income? If so, get your tax returns out. Lenders
will subtract out the expenses for the rental income to determine whether
there is a profit or a loss the rental properties. Rental losses are
subtracted from gross earnings.
Questions About Loan Pre Approval
► Do I qualify for a home loan
Banks and mortgage companies require two years of continuous
employment, although there are some exceptions to the two
year (24 month) rule. Most mortgage lenders desire a credit
score of 620 or greater, however, once again there are exceptions.
For example, the FHA home loan will accept a 580 credit
score. The mortgage programs require a balance between monthly
income and monthly debt obligations. Lenders use a formula
called debt to income to help determine the ideal loan amount
and monthly mortgage payment. The only way to determine
whether you will qualify for a mortgage is to speak to a
mortgage loan officer to determine whether you qualify for
a home loan.
► How long is a mortgage pre approval
Most lenders will tell you that their pre approval is good
for 60 days, but the pre approval is dependent on maintaining
the status quo for income, credit, and employment that was
provided to the lender. Taking on more debt or reducing
cash assets can nullify the pre approval. Don't quit
your job or make any changes to your employment. In short,
the pre approval can extend much further than 60 days provided
no changes have occurred since approval.
► How long does mortgage pre approval
Pre approval can take as little as 30 minutes, but could
stretch out weeks if you do not have all your information
ready for the loan officer. The mortgage lender will want
to see your most paystub or ask you to recite the information
on the paystub. He or she may want to see (or hear) your
W-2 earnings from last year. Are you receiving or paying
child support or alimony? The lender needs all information
relating to monthly income and monthly debt obligations.
The self employed, rental, and non-taxable income can slow
down the pre approval. Prior to speaking to a loan officer
for pre approval or pre qualification, have your tax returns
for the two previous years, your most recent paystub and
bank statements and any other savings account(s). Including,
401K and deferred retirement accounts.
► Does a pre approval letter guarantee
When a lender provides you with a pre approval letter, he
or she is basing the pre approval on a hypothetical sale.
The lender is estimating the sales price, real estate taxes
and homeowners insurance based on your financial information;
therefore, no pre approval can be guaranteed.
► Does getting pre approval hurt
The credit inquiry will have a nominal impact, if any.
► How do I get pre approved for a
Any of the lenders below will be happy to start the pre