6 things to look for in a lender
These benefits may make your mortgage experience better.
One of the first steps in buying a new house is to arrange a mortgage loan. The amount you can borrow will depend on a number of factors, including your ability to repay the loan. Your lender will use two ratio-based guidelines to evaluate your ability to repay.
The first is your debt-to-income ratio. Debt-to-income ratio is the percentage of your monthly income that is spent on monthly debt payments.
So that means your expected monthly mortgage payment (principal, interest, taxes, and insurance) plus your other monthly debt obligations are compared to your gross pre-tax monthly income.
Mortgage program guidelines vary, but a good rule of thumb is to keep your total debt level at or below 36% of your gross monthly income.
The second, housing-to-income ratio, is the percentage of your monthly income that is spent on monthly housing payments. So your lender will also compare just your expected monthly mortgage payment (including taxes and insurance) to your gross monthly income. Mortgage program guidelines vary, but a good rule of thumb is to keep your housing expense level at or below 28%.
Even if you fall within these guidelines, make certain that you feel comfortable making your monthly mortgage, insurance, and tax payments along with the payments for all your other monthly obligations.
These obligations include savings, debts or loans, groceries and household supplies, clothing, shoes and accessories, transportation, gifts and charitable donations, Internet, cable, phone, and travel and entertainment.
And remember, homes have other costs, too, such as utilities, maintenance and repairs, that may not exist if you rent.
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Smart buyers do their homework. They estimate a price range for a house before they shop. You can do this with a mortgage prequalification or a preapproval.
A free mortgage prequalification lets you know roughly how much you can borrow, based on basic financial data you provide.
There is no fee or obligation and no credit check involved.
A pre-approval involves a more detailed look at your data and is based on a preliminary review of your credit information. It tells a real estate agent and seller that you’ve been preapproved for a specific loan amount. With a preapproval, there may be a fee for the cost of the credit check.
Because it is based on more detailed information and an actual credit check, a preapproval has greater benefits than a prequalification.
With a preapproval, you’ll be able to shop confidently because you have an estimate of how much you may be able to borrow, and your real estate agent will know your approximate price range to search.
Getting preapproved or prequalified can help you estimate your price range.
However, it’s important to remember that neither one is a commitment to lend.
1 A PriorityBuyer® preapproval is based on our preliminary review of information provided and limited credit information only and is not a commitment to lend. We will be able to offer a loan commitment upon verification of application information, satisfying all underwriting requirements and conditions, and property acceptability and eligibility, including appraisal and title report. Preapprovals are subject to change or cancellation if a requested loan no longer meets applicable regulatory requirements. Preapprovals are not available on all products. See a home mortgage specialist for details.
2 yourLoan Tracker is not available with all loans; talk to a home mortgage consultant for details.