If you're planning to buy a home, you should know that the mortgage pre-qualification process is the first in a series of steps that eventually lead to home ownership. A pre-qualification is different from a pre-approval – the pre-qualification meeting is simply you and your lender hashing out how much you can afford to spend on a property. But once you've been pre-qualified, it makes the mortgage process easier.
So how can you make the pre-qualification quick and painless so you can get on with your house hunt? Here's what you need to know.
Get Your Debts In Order
One of the major questions during the pre-qualification meeting will be your work history and debts. Your lender will use your social security number to look up your work history and determine your income and current assets, as well as your monthly debt payments. If you have a high amount of debt, you'll want to do everything you can to pay it down before this meeting.
Chart Your Income And PITI
Your lender will use a specific ratio (the PITI to income ratio) to determine how much it's willing to lend you in order to buy a home – and that's why, if you calculate this ratio beforehand, you'll know what to expect going into the meeting. PITI stands for "Principal, Interest, Tax, Insurance" – and it refers to the four components of a standard mortgage payment. Your PITI ratio, then, shows how much of your income goes toward your monthly mortgage payment.
To calculate your PITI to income ratio, simply divide your gross monthly income by your monthly mortgage payment (your PITI fees plus your mortgage insurance). Most lenders will want to see a PITI to income ratio that is under 28%.
Build Out Some Mortgage Calculator Numbers
It's important that you have an idea of what to expect when you walk into your pre-qualification meeting. That's why you'll want to run some calculations of your own before meeting with your mortgage advisor. There are a host of online calculators that can help you to break down how your mortgage will work out.
Look for an online mortgage prequalification calculator offered by a bank or other mortgage professional. Organizations like FICO and Wells Fargo also offer prequalification calculators that make it easy to see what you can afford.
Pre-qualifying for a mortgage can seem like a daunting process, but it's actually quite simple. Your mortgage advisor can help you to understand what goes into a pre-qualification. Contact your local mortgage professional to learn more about how pre-qualifications work.
When you are ready to start looking for your next home, I am here to assist you with the home selling and buying process and beyond and to answer any questions that you might have. Call me directly at 678-357-5829 or if you would rather send me an email, SoldBySanna@kw.com. If you like this blog, let me know! You can also “like” my Facebook page. I look forward to working with you or someone you know in 2016! I want to be your Realtor for Life!
Sasanna Strozier - REALTOR®, ABR, MRP, USAF Veteran
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