Prequaification for a home loan When you are looking to buy your first home you may or may not have had a discussion about finances with a lender. If you have had a meeting with a lender good for you, hopefully your lender provided you with a prequalification letter so that you have an idea of how much money you can take out in the form of a loan and how much money it will cost you to get such a loan. If you have not met with a lender yet, this is one of the biggest steps you can take toward finding a home.
When you meet with your lender you may expect to have a general discussion about what your financial goals are in regard to buying a home. If you haven’t thought that far in advance it’s a good thing to ask your lender to help you with those questions. In that discussion a lender will likely ask you for a few pieces of information to help them determine a more accurate loan amount that you can afford. Those items include your gross monthly income, your total monthly debt, permission for them to pull your credit score and to view your recent payment check stubs and copies of your last two years of W2 tax statements.
A lender will develop a debt to income ration based on your gross monthly income and your total monthly expenses. If you have a debt to income ratio of 36 percent or less it is generally safe to say that you are well qualified to buy a home. The lower your ratio the better off you are.
The lender will also want to take a look at your credit score, for obvious reasons of course. In more detail they want to know that you are credit worthy and that making a loan to you will be a wise investment on their part. From your credit report they can see what your employment history looks like, how well you pay bills, what your current credit lines are and many more things that will indicate that you are an acceptable candidate for a loan on a house. It is also customary that they review your tax statements to verify that you have made sufficient income for the past few years to cover the mortgage payments that you will be expected to pay. It also allows them to make sure that you have in fact paid those taxes. Having unpaid taxes could sideline you for getting a loan so make sure that issue is addressed prior to consulting with a lender.
Once you get through this process you can take the value that you are qualified for to your real estate agent and they can help you narrow down a search to purchase your first home.
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