BEFORE WE BEGIN…
PRE-QUALIFICATION
AND PRE-APPROVAL
Many buyers apply for a loan and obtain approval before
they find the home they want to buy. Why?
Pre-qualifying
will help you in the following ways:
- Generally,
interest rates are locked in for a set period
of time. You will know in advance exactly what your payments
will be on offers you choose to make.
- You
won’t waste time considering homes you cannot afford.
Pre-approval
will help you in the following ways:
- A
seller may choose to make concessions if they know that
your financing is secured. You are like a cash buyer,
and this may make your offer more competitive.
- You
can select the best loan package without being
under
pressure.
HOW MUCH HOME CAN YOU AFFORD?
There
are three key factors to consider:
- The down payment
- Your
ability to qualify for a mortgage
- The
closing costs associated with your transaction.
DOWN PAYMENT REQUIREMENTS:
Most
loans today require a down payment of between 3.5% and
5.0% depending on the type and terms of the loan. If you
are able to come up with a 20-25% down payment, you may
be eligible to take advantage of special fast-track programs
and possibly eliminate mortgage insurance.
CLOSING COSTS:
You
will be required to pay fees for loan processing and other
closing costs. These fees must be paid in full at the final
settlement, unless you are able to include them in your
financing. Typically, total closing costs will range between
2-5% of your mortgage loan.
QUALIFYING FOR THE MORTGAGE:
Most
lenders require that your monthly payment range between
25-28% of your gross monthly income. Your mortgage payment
to the lender includes the following items:
- The principal
on the loan (P)
- The
interest on the loan (I)
- Property
taxes (T),
- The
homeowner’s insurance (I).
Your
total monthly PITI and all debts (from installments
to
revolving charge accounts) should range between 33-38%
of your gross monthly income. These key factors determine
your ability to secure a home loan: Credit Report, Assets,
Income, and Property Value.
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