Home Loan Preapproval
Are you paying all cash for your new home? If not, having a home loan pre-approval will guarantee that any home for sale in your price range will have a welcome mat out for you. Your pre-approved purchase amount will be determined by the financial entity that is going to loan you the money, so you should contact Elizabeth Axelgard for referrals to home loan lenders. The funding entity you choose will take into consideration several factors, then will issue a statement regarding the amount of loan you qualify for. That amount will be based at least partially on a maximum of 30% of your gross monthly income. As a general rule, no more than about 36% of your income should go toward your house payment and other long-term debt.
Your total monthly house payment will be calculated according to different formulas by different lenders, but it’s common for that figure to include mortgage principal and interest payment, property taxes and insurance. It’s an amount commonly referred to as “PITI.” Keep in mind that it’s highly likely there will be additional costs figured in if your down payment is less than 20%, or if there are ancillary expenses such as homeowners’ association dues.
The Pre-approval Letter
Although acquiring a pre-approval letter can be a somewhat involved process, the document will definitely give you an advantage in the home buying arena. The process also provides a good indication of:
• Down payment necessary
• Closing costs
• Total monthly house payment — principal, interest, taxes and insurance. (PITI)
• Loan type that is best for you and your situation
• Home buyers and owners programs such as those for veterans, first-time buyers, teachers, etc.
Materials your lender will need, include:
• Employment and income history (including recent pay stubs)
• Monthly debts
• Amount and source of cash available for down payment and closing costs.
It’s important to keep in mind that due to possible changes in your income, debts, overall financial situation and interest rates, to name a few variables, lenders are not bound by pre-approval letters. Instead, when you find the home you want, the lender will appraise it, consider all the other variables and then make a final decision regarding your qualification. Elizabeth Axelgard can offer advice and recommendations regarding lenders, as well as the specifics of making an offer on a home.