One of the first steps to take as a potential home buyer is to get pre-qualified for a loan. This step helps both you and your lender learn just how much home you can afford. And you should begin this process before you even start looking for a home.
According to the Federal Housing Administration (FHA), their pre-qualification essentials include:
- Having a steady employment history, covering at least two years.
- Consistent or increasing income over the past two years.
- Credit report reflecting a good repayment history with creditors.
- Any bankruptcy must have been discharged at least two years prior (one year for a Chapter 13), with good credit since the discharge.
- Any foreclosure must have been completed at least three years prior, with good credit since the completion of the foreclosure.
- Mortgage payment – including taxes, homeowners insurance, mortgage insurance, and HOA dues (if applicable) should be no more than approximately 30% of your total gross monthly income.
- Total monthly debt payments should not exceed approximately 45% of total gross income.
To determine pre-qualification, mortgage lenders will look at your credit report, earnings, debts, and savings in order to see how much home you really can afford.
Why is pre-qualification important?
Pre-qualification for a home loan typically costs you nothing, but gives you a goal of what homes are in your affordability range, as well as how much money you should look to have saved for a downpayment.
During the pre-qualification process, you will be expected to provide the following information:
- Your gross monthly income
- Your total monthly payments (car payments, credit cards minimums, child support payments, student loan payments, any other monthly debts)
Ready to find out where you stand? Talk to a Guild Mortgage Loan Officer today and get one step closer to your home ownership goals.