Mortgage
Prequalification
How Much Can I Borrow? - Check Your Ratios
There is not a “cut and dry” answer to that
question. With traditional financing, the general
rule of thumb has been to follow the 28/36 rule. This
means that your house payment including taxes, insurance,
and any homeowner’s dues should not be more than
28% of your gross monthly pay (this is called your
“front end ratio”). Likewise, all of your
monthly liabilities that appear on your credit report
should not exceed 36% of your gross monthly pay (this
is referred to as your “back end ratio”).
To Calculate:
Front End Ratio = estimate your monthly mortgage
payment /gross monthly pay
Back End Ratio = estimate all of your monthly payments
listed on your credit report / gross monthly pay.
Your ratios are only one variable which determine
how much you can borrow. There are plenty of “No
Ratio” loans on the market where the lender does
not look at your ratios for qualification purposes.
AAXA even works with a lender which will do 100% financing
without looking at your ratios. What you really need
to ask yourself is “how much can I afford to
pay each month?” Start there and then call a
couple of mortgage professionals and find out exactly
what programs and rates exist for your particular
situation.
Mortgage Pre-qualification and Mortgage Pre-approval
In a today’s real estate market, sellers are typically
looking for some evidence that you are qualified to
buy before they accept your offer. Without a mortgage
pre-qualification or home loan pre-approval letter,
you may find yourself at a competitive disadvantage
if there are competing offers and the other buyers have
shown the goodwill of seeking out financing ahead of
time.
What is the difference between the two terms?
A mortgage pre-qualifications typically implies that
you have spoken with a lender or broker and, based upon
the information that you have provided, are qualified
to borrow ''X''amount of money. A mortgage pre-qualification
letter is a good start but often comes with some vague
language and a laundry list of ''outs'' that may not
build confidence in the seller’s or real estate
agent’s mind. A mortgage pre-approval takes the
process to a new level. Mortgage pre-approval letters
typically indicate that the borrower has met with a
lender or broker and that the borrower has been approved
for a mortgage with a very limited list of pending items
(typically the appraisal and final underwriting review
need to be completed). Some homeowners may not understand
the difference but, believe us, most real estate agents
do and they have their customers’ ears. We suggest
taking the time and to obtain a home loan pre-approval.
AAXA does not charge an application fee and would be
more than happy to provide you with a free mortgage
pre-approval.
Other First Time Homebuyer Resources:
