It’s always less intimidating and less tedious if you obtain a loan approval before committing to a specific property. Here are suggestions to help guide from rent or lease status to home ownership
Mortgage Loan Pre-qualification and The Lending Process:
- Be employed for at least three years of full time
- Be steady with monthly payments for creditors including credit cards, utility, house rent and car payments
- Obtain at least a credit score of 600 Request and review credit report for these items: Look for number of debts
- Look for monthly debts including credit cards and compare with monthly income [Income Percentage – Debt Payment Percentage] should be less than 45%. i.e., if income is $2000 then monthly combined debt payment must be $1100 or less.
- To find home sales costs in a neighborhood of your choice
Speak with a licensed realtor
- Determine if you have adequate down payments.
Use this ratio OR formula: (Cost of Home x 20%) – (Cost
of Home) = Adequate Down payment – Illustrated in this way: [($200,000 x .20) = $4,000, hence adequate down payment is $4,000
Note that the amount of loan offered by the bank is the difference between the home cost and the down payment amount.
- A – Determine if you have adequate monthly
payments verifiable by monthly earnings from your wages,
pay stubs or W2. Use this formula: Loan Principal / (30 x 12) X 12/10. Demonstrated here: (Step 1) 160,000 / (30×12) OR 160,000/ 360 = $445
(Step 2) $445.00 x12 = $5,333.33
(Step 3) $5,333.33 / 10 = $533.33
Your monthly payment based on your $200,000 home cost will be $533.33
- B – When calculating net monthly income you would need to
deduct utility, credit cards, food and entertainment, and household debts and payments from your net paycheck.
- Deduct Item A above from Item B, if you have at least 25% of Item
B left over after this deduction, your loan will be approved.
- If you were looking for a 15 year loan instead of a 30 yr. loan as
stated in the formula example – You should use 15 in the formula: explained with this equation $160,000 / (15 x 12) instead of $160,000 / (30 x 12)
So now you have determined that you have adequate:
- Income
- Length of Employment OR legally verifiable self employment
- Credit
- Credit History
- Loan to Value Ratios
- Home location
It’s time to head to your bank, and you should have mortgage approval in at least six weeks. Please note that it’s always less intimidating and less tedious if you obtain a loan approval before committing to a specific property. Here are suggestions to help guide from rent or lease status to home ownership after your loan is approved
- Speak with a realtor
- Do not be hasty in finding a property you will desire for a long time
- Always take with you a friend who is neither eager or reticent about your buying a property, who can give an unbiased opinion regardless of your approval or disapproval
- Choose desired Income
- Inform the mortgage loan officer of your chosen property
- Loan officer finds an acceptable time for you and sets a closing date
- Sign your contract, receive your keys. Congratulations!
