Pre-Qualify Early for a Home Loan If You Are in the Market to Buy

Our current lending environment offers historically low interest rates in conjunction with an extremely hot real estate market. In a setting where multiple offers are being received on any property priced from $150K – $450, it is important to ensure that your offer is taken seriously. To do so, get pre-qualified with an experienced Loan Originator before you make an offer or even start shopping for a home. Getting pre-qualified allows you to know how much of a house you can afford and gives you an edge over the competition. Listing agents advise their sellers to only accept offers from potential buyers who have been pre-qualified.

Here are a few tips to maximize how much you can qualify for:

  • Self-employed borrowers: Lenders use the adjusted net earnings from your business to calculate actual income, not the gross sales from the business. Many self-employed individuals write-off a large amount of their gross sales for tax purposes. When you are working with your tax professional, keep in mind that Lenders only use the adjusted net business earnings as a basis for calculating monthly income.
  • Know how long you anticipate staying in the home you are looking to purchase: Most first-time homebuyers only stay in their home for a maximum of 7 years. If you are a part of this statistic, consider a longer term ARM (adjustable rate mortgage) such as a 7/1 ARM or a 10/1 ARM. Most adjustable rate mortgages offer you a lower interest rate (versus a 30 year fixed loan) for a fixed period of time. You can increase the loan amount you can qualify for with lower interest rate products such as a 10/1 ARM.
  • Debt management: All lenders have to count the minimum monthly payments that show on your credit report in their debt-to-income calculation. A credit report is a snapshot in time, so even if you pay off a credit card on a monthly basis if there is a balance showing on the credit report at the time your Lender pulls your credit the minimum monthly payment will still count in your debt calculation. To maximize what you can qualify for keep your balances on credit cards and other debts that report on your credit report to a minimum.
  • Credit scores: Most lenders have risk-based interest rates. What this means is that a lower credit score (680 and below) will usually result in a higher interest rate. A lower interest rate will lower your monthly mortgage payment and the lower the interest rate, the more you can qualify for. If you are looking to improve your credit scores to maximize what you can qualify for here are a few tips:
    • With any revolving account such as a credit card that can be charged up, paid down and charged up again, make sure that your current balance is 50% or less than your credit limit. For example if you have a credit card with a limit of $1,000 make sure you keep the balance below $500 to maximize your credit score.
    • Don’t close accounts that have been open for a long period of time. One of the algorithms the three credit bureaus (Equifax, TransUnion & Experian) use in creating a credit score is the length of time an account has been open. Many people think that if they close an account it will increase their credit score and that is not accurate. An account with a history of on-time payments that has been open for several years has a very positive impact on your credit score, closing an account like that could actually have a negative impact on your credit score.

 

-Amber P., Mortgage Loan Originator

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