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 https://dc.urbanturf.com/articles/blog/the-mortgage-pre-approval-process/15127.
Most Popular... This Week • Last 30 Days • Ever
The listing will hit the market on Wednesday, according to the Washington Business Jo... read »
Here are some precautions to take before buying real estate with a buddy.... read »
The concept for the residential conversion of a prominently sited building in Dupont ... read »
About a month ago, UrbanTurf examined how condo and co-op prices were driving home pr... read »
Even though flipping is not as prevalent in the city as it used to be, there are sti... read »
With interest rates reaching their highest levels in 22 years, it is critically impor... read »
Just before the holiday, UrbanTurf is taking its semi-annual look at the neighborhood... read »
Plans have been filed with DC's Historic Preservation Office to convert the building ... read »
An application filed with DC this week signals the end is nigh for a McDonald's locat... read »
The change would allow for an 80-acre portion of DC's 272-acre Armed Forces Retiremen... 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. Start browsing below!
Intro guides for first-time home buyers
Awesome and unusual real estate from across the DC Metro