Despite the current weather on the east coast, the start of spring is just a few days away, which means that the housing market will soon be in full swing. To get prospective homer buyers ready, UrbanTurf is running a series of articles over the next few days to help educate readers on the process.
As buyers get the itch to look for a home and start to venture out to open houses, it will behoove them to go through the pre-approval process. Pre-approval essentially consists of a lender going through various aspects of a homebuyer's background (credit history, income verification, etc.) to determine how much home they can actually afford (and how much of a loan they will be able to get).
Here is a quick Q&A that will help demystify the experience.
What information will a borrower need to submit for a pre-approval?
In general, a pre-approval applicant will need to submit last year's tax return, a current pay stub, and information about any other sources of income or assets (investments, retirement accounts, for example). In addition to assets, it is probably a good idea to give lenders a sense of all debts and monthly expenses. Lenders also like know where the down payment is coming from.
How important is good credit?
During the pre-approval process, the lender will also do a credit check. A "good" credit score is now considered 740 or higher. Drop into the high-600s and you may not get quite as low an interest rate as you may have wanted. Once you get below the mid-600s, it becomes more difficult to get a loan.
So, how much of a loan can I expect to get?
Generally, the rule-of-thumb that lenders use these days is to assume that the mortgage payment will be 33 percent of a borrower's gross monthly income, depending on other debts that the buyer carries. Typically, lenders don't want the total debt-to-income ratio to be more than 45 percent. (Interestingly, the old standard was 28 percent for housing, and 36 percent for total debts.)
For example, consider a $400,000 condo. Assuming a buyer will put down 20 percent ($80,000), and expects to pay $250 per month in taxes and $300 in condo fees, they will need an annual income of $73,000 to comfortably make their payments. However, they won't qualify for the same loan if they also have a $600 monthly car payment and $300 monthly student loan payment.
This article originally published at http://dc.urbanturf.com/articles/blog/first_timer_primer_the_mortgage_pre_approval_process/6482
Most Popular... This Week • Last 30 Days • Ever
UrbanTurf has compiled virtual looks at large new developments around the DC region.... read »
The planned 8-unit development would be located on K Street right along the Potomac R... read »
Loan recasting is a growing practice- so what is it?... read »
The project would replace a concrete plant and would deliver the neighborhood's first... read »
The 25-acre array will produce a quarter of the university's current annual energy co... read »
The preferred mortgage product among most home buyers is the fixed-rate mortgage. How... read »
STAY DC provides rental aid and utility payment grants to at-risk District residents ... read »
Federal Realty plans to eventually file a planned unit development application for th... read »
Landmark Theatres is in the final stages of negotiations that would have it operating... read »
The 12,000 square foot replica of 1600 Pennsylvania Avenue went under contract last w... read »
With this weekend's DC houseboat tour a day away, UrbanTurf thought it only fitting t... read »
President Obama travels to Denver this morning to sign the stimulus bill that has bee... read »
In this week's installment of Ask An Agent, a reader wonders if there is a rule for h... read »
As The Wharf prepares to begin construction, DC's houseboat community heads to its ne... read »
In this week's installment of Ask An Agent, a reader asks a fairly common question th... read »
DC Real Estate Guides
Short guides to navigating the DC-area real estate market
We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!
Intro guides for first-time home buyers
Awesome and unusual real estate from across the DC Metro