While it is super exciting to embark on the journey of buying a home, it can be equally nerve-wracking. With so many steps involved, it can be an overwhelming experience. However, you can make it easy for yourself if you take one step that can take you closer to your dream of becoming a homeowner.
While it is super exciting to embark on the journey of buying a home, it can be equally nerve-wracking. With so many steps involved, it can be an overwhelming experience. However, you can make it easy for yourself if you take one step that can take you closer to your dream of becoming a homeowner. Are you wondering what we are talking about here? Well, it is securing pre-qualification for your home. Being pre-qualified can help you with your budget, and the sellers will also consider you first.
Having pre-qualification by a lender helps in determining the mortgage one can afford. The process involves analyzing your amount of income, debt, credit history, and the savings you acquired over some time. Once you do this, you are set for pre-approval at the hands of your lender. This is important, considering that agents are more likely to accept offers from buyers who have a pre-approval. So how do you get pre-qualified for a home in 2020?
What Does Being Pre-Qualified Exactly Mean?
Having a pre-qualification means that a lender is ready to provide you with the money needed to buy a home. It is pertinent to mention that it does not guarantee that you will get a mortgage. However, it indeed promises a maximum amount of loan.
Moving on, you must have come across two terms, “pre-qualification” and “pre-approval.” While they might sound somewhat similar, these two terms are different. There’s a HUGE difference between being pre-approved and being pre-qualified for a home in 2020.
When it comes to pre-qualification, consider it as a rough estimate and not a fixed number. There is no guaranteed figure considering that lenders tend to base this number on a financial overview. The lender sees your credit score coupled with debts in addition to other details and then gives out a rough pre-qualification figure. Pre-qualification and pre-approval do not share the same level of authority. But, having a pre-qualification will provide a perspective of what can get pre-approved.
You only receive this after a thorough analysis of finances. Considering that it is quite an amount for a loan, lenders only let them out after doing an in-depth analysis of the candidate’s financial standing. This includes conducting a credit check in addition to reviewing the mortgage application. Unlike pre-qualification, pre-approval is more carefully determined.
Let’s take a look at the things that lenders dig into during the pre-qualification process.
To analyze this, they look at the nature and length of your employment. They also evaluate the stability of your position as an employee. This is to see whether or not your current salary is enough that you could easily make mortgage payments in addition to the living expenses. This includes basic necessities such as grocery, clothing, and bills.
Besides the salary, the lender sees the amount of money you happen to owe and how much you spend from your salary to pay off the debts every month. This includes all the recurring expenses, such as credit card payments, medical bills, car expenses, student loans, or several other forms of debts that must be paid monthly. Lenders need to see that the total debt and the mortgage cost do not go beyond 43% of your gross income.
It is very important for the lenders that their prospective candidates come with a stable credit history. Simply put, they must hold a decent record of timely payments, considering that existing history is an insight into future performance. Therefore, we suggest you consult a financial counselor and review your credit history before moving on to apply for a loan.
Purchasing a house is indeed a big achievement. However, it can only be a smooth ride if you do your homework. Therefore, seek expert advice whenever you cannot sense of the process of pre-qualification. All of the tips above will help you get pre-qualified for a home in 2020.