Most people don’t know how much home purchasing power they have, how much to expect for closing costs, which can vary by state, or how much paperwork is involved when applying for a home loan. According to one expert lender at a houston federal credit union, most potential home buyers have no idea the difference between loan programs from bank to bank or lender to lender. Successfully navigating the maze of requirements and regulations will ultimately lead you to your mortgage closing, but being an educated consumer gives you an advantage.
Should You Get Pre-Approved or Pre-Qualified First?
There are differences between having pre-qualification and pre-approval status, and not all lenders offer the more thorough pre-approvals. With pre-qualification, the lender will pull your credit, request your income, assets, and employment, then determine what, if any, loan programs you qualify to purchase a home. Many lenders say pre-qualifications leave room for misinterpretation because a lot of information is left out, which can lead you to believe you qualify for homes in the wrong sales bracket.
Pre-approval is a more thorough process because not only do you provide the basic information, but you also provide work history and documents that cover the last two years, along with asset statements. With this information, the lender can accurately consider your income and calculate a debt-to-income ratio, and funds available for down payment and closing costs, and more importantly, if you truly qualify. This process can save a lot of headaches and disappointments during the loan process, and it makes home shopping much easier.
How Do You Qualify for a Mortgage?
There are key qualifications for a mortgage loan — Credit, Capacity to pay it back, Assets, and Down Payment. Each of these plays a critical role in the likelihood and ability of the borrower to repay the debt. This is also why lenders ask for specific information.
1. Credit. Past credit is a good predictor of future behavior.
2. Income and Assets. Your income is used to calculate your debt-to-income ratio. The lender will look to see if you have enough income to cover your current and future debts.
3. Assets and Down Payment. Lenders want to make sure the down payment and closing costs are coming from your own savings and that the funds are legitimate, and not from nefarious practices.
Credit Scores Can Make or Break the Deal
Credit is a fluid circumstance. You can have outstanding credit one day and next month a tax lien shows up. All of sudden you can have a moderate credit score. Lenders understand that major life events often have big impacts on credit scores. A divorce, a death, or loss of income can lead to late payments, which will lower your score. However, there are different scenarios so it’s best to consult an expert because in some cases, there are exceptions to the rules. The mortgage industry can often be confusing when buying a home, and most people don’t take the time to understand all the rules and requirements. Knowing what to expect can save a lot of time and energy and help you to navigate the process to your benefit.