How and Why to get Pre-qualified
WHY-
Assume two buyers make an offer on the same piece of property. Buyer A offers $223,000 and is qualified to $225,000. Buyer B is offering $225,000 predicated on his ability to obtain financing. The owners have the option of:
If the seller accepts Buyer A's offer, the house is sold. If the seller accepts Buyer B's offer he must put his life on hold and hope that Buyer B is able to obtain financing. If Buyer B is unable to arrange financing, the seller will have to put the house back on the market and wait for another buyer.
HOW-
Mortgage lenders will qualify a buyer in the hope of getting their business. Mortgage lenders follow some guidelines when determining a credit limit for a home buyer.
The amount of gross income that can be used to pay housing expenses is normally 28%, but can go higher in some circumstances. Housing expenses are defined as principle and interest payments, property taxes, and homeowner's insurance. If you pay less than 20% down, you may be required to add the cost of mortgage insurance (PMI).
The amount of gross income that can be used to pay all debt service (including housing) is normally 36%, but can run as high as 41% in some circumstances.
(Note: Gross Income is what you earn, not what you take home after tax.)
Some factors that a lender may consider is the amount of your down payment, your work record, your credit history, and a spouses ability to contribute additional income if it should become necessary.
If you are seriously thinking about homeownership and you want the Realtors and sellers to take you seriously - always get pre-qualified. Pre-qualifying should be done by a lender in the area where you hope to buy. I work with several lenders and would be happy to supply you with a list in order for you to choose one that is right for you.