Pre-qualification

Now that you know you want to buy a house, how do you know how much you can afford and if you can qualify for a loan? We will guide you through the financial steps to purchasing a home.

How to start

Start the process by going through the pre-qualification and pre-approval process with a lending specialist.

Pre-Qualification versus Pre-Approval

  1. Pre-Qualification is how much money a bank will lend you based on your income, assets, and debts. Pre-Qualification is typically done over the phone with a lending specialist. This is the first step to get started in the buying process. The lending specialist will do a minimal credit review over the phone which means discussing your credit background. When you begin the Pre-Approval process the lending specialist will actually check your credit but during Pre- Qualification they will simply gather basic information regarding your financial and credit situation.
  2. Pre-Approval is a more formal process and includes completing a loan application on-line and providing documentation regarding income and assets. During the Pre-Approval process the lending specialist will ask for authorization to check credit in order to analyze debt ratios. Pre- Approval is typically done when you start looking for houses with a real estate agent or prior to writing an offer.

What Factors Affect What I Can Afford?

There are three factors that affect how much you can afford when you decide you would like to buy a home.

  1. The down payment – do you have enough liquid cash to make a down payment?
  2. Your ability to qualify for a loan – as mentioned earlier this is determined during the Pre- Qualification & Pre-Approval Process
  3. The associated closing costs on your home.

How Much is My Down Payment?

Most loans today require a down payment between 3.0% to 20%. Contrary to what many people think, there are still loans that have lower down payment requirements depending on the type and terms of the loan. Keep in mind, if you are able to come up with 20-25% down you will eliminate mortgage insurance.

How Much are Closing Costs?

You will be required to pay fees for acquiring the loan and other closing costs. These fees must be paid in full at the closing unless you are able to include them in your financing. Typically, closing costs will range between 3-6% of your mortgage loan.

What Does my Monthly Mortgage Payment Include?

Most lenders require that your monthly payment range between 29-36% of your gross monthly income. Your mortgage payment to the lender includes the following:

  • The principal on the loan (P)
  • The interest on the loan (I)
  • Property taxes (T)
  • The homeowner’s insurance (I)

This is what we call PITI and your total monthly PITI and all debt (from installments to revolving charge accounts) should range between 36-45% of your gross monthly income. These key factors determine your ability to secure a home loan: Credit, Assets, Income and Debt Ratios.

Loan Application Checklist

Most lenders will have you go online to apply in order to gain pre-approval. Following is the information you need to provide during the loan application process (these documents are usually uploaded to the lending specialist through a secured link):

General

  • Non-expired Government ID and Social Security Number
  • Name and complete address for past 2 years of residence

Income

  • Employment history, including names, addresses, phone numbers for the past 2 years.
  • Copies of your most recent pay stubs and W-2 forms (past 2 years).
  • Verification of other income (social security, child support, retirement).
  • Copies of signed tax returns including all schedules (past 2 years).
  • Social Security & Pension Award letters.
  • If you have rental property income: Copies of all signed lease agreements.

Assets

  • Copies of all bank statements from checking/savings accounts (past 2 months).
  • CD certificates and statements for retirement accounts (most recent 2 months or quarterly statement).
  • Gift funds will need gift letter of proof of gift.

Creditors

  • Credit cards (current balances and monthly payments).
  • Installment loans (car, student, etc.).
  • Mortgage loans (property address, lender with address, account numbers, monthly payment and balance owed on all properties presently owned or sold within the last 2 years). Bring proof of sale for properties sold..
  • Childcare expense/support (name, address, phone number). [VA loans only]

Other

  • Bankruptcy – bring discharge and schedule of creditors.
  • Adverse credit – bring letters of explanation.
  • Divorce – bring your Divorce Decrees, property settlements, quitclaim deeds, modifications, etc.
  • VA only – bring Form DD214 and Certificate of Eligibility.
  • Retires – bring retirement and/or Social Security Award Letter.

10 Commandments of applying for a loan

Important rules to follow to ensure a smooth loan process.

  1. Thou shalt not change jobs, become self-employed or quit your job.
  2. Thou shalt not buy a car, truck or van (or you may be living in it)!
  3. Thou shalt not use charge cards excessively or let your accounts fall behind.
  4. Thou shalt not spend money you have set aside for closing.
  5. Thou shalt not omit debts or liabilities from your loan application.
  6. Thou shalt not buy furniture.
  7. Thou shalt not originate any inquiries into your credit.
  8. Thou shalt not make large deposits without first checking with your loan officer.
  9. Thou shalt not change bank accounts.
  10. Thou shalt not co-sign a loan for anyone.

Ready to work with us?

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Our goal is to serve our clients for the long term by educating, informing and sharing our expertise about the real estate market.
NANCY DINSHAW, Broker Associate
DRE# 01924283
19400 Stevens Creek Blvd, Ste 200
Cupertino, CA 95014
T. (650) 549-5539
C. (650) 223-4956
E. nancy@liveinthebay.com
© 2020 NANCY DINSHAW ALL RIGHTS RESERVED. DRE# 01924283. KELLERWILLIAMS REALTY is a licensed Real Estate Broker and abides by equal housing opportunity laws. Website by Audacious Designs.
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