Understanding your Ability to Qualify for a Mortgage

One of the biggest concerns for many home buyers is the amount of money they can qualify for to purchase their home. Each year a surpassing number of homebuyers start shopping the market only to find out they had no idea of the amount of paperwork that can be involved in the process of qualifying for a home loan in order to determine how much house they can afford to purchase. Before you begin the process, take the time to make sure you know what is involved in determining how much house you can qualify for.

First, understand there is a big difference between being pre-qualified and pre-approved for a loan. Many lenders advertise that they can provide a verbal pre-qualification in under an hour. Keep in mind that this is not a full-fledged qualification and in the end the amount you ‘qualify’ for in an informal pre-qualification could be a lot different than the amount you qualify for after all documentation is turned in and your credit history is run.

Be aware that the amount of home for which you may qualify can be determined by the amount of down payment you can afford to make on the home. In some cases, this can seriously affect your ability to purchase a more expensive home. Higher down payments mean being able to qualify for lower interest rates and in some cases making it easier to qualify for a mortgage itself, if you have credit problems.

Your ability to qualify for a mortgage and the amount you qualify for will also be determined by your monthly gross income and your long term debt. Lenders typically do not like to make loans for mortgages that will allow monthly housing costs to exceed 28% of your monthly gross income. Housing costs include not only your monthly mortgage payment but also other costs as well such as property taxes and private mortgage insurance that must be paid if your loan exceeds 80% of the home’s sales price. In addition, lenders generally prefer for all of your long term debt obligations, including your housing costs, to be under 39% of your monthly gross income.

Other factors that can affect your ability to qualify for a mortgage include the stability of your income and potential for future earnings as well as your credit history. Lenders will review your history of debt repayment as well as outstanding debt obligations, the level of your debt balances and monthly debt payment obligations when making a decision regarding your loan application.

Finally, be aware that in many cases the property itself can affect your ability to qualify for a mortgage to make the purchase. The property must be appraised and the sales price fall within the value of the home. Lenders typically will not loan more than 95% of the market value of the home.

 
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