Blue Ridge Real Estate

As one anticipates the prospect of buying a residence, an advisable step is to approach a lender and ask to be pre-qualified for a mortgage loan. The service they offer does not obligate the buyer to use this loan company or to even go ahead with the buying process. Seeing there is no cost or obligation for this pre-qualification, one should know they ask you for your relative credit rating and do not go to the expense of purchasing one.

So, one only has a rough idea as to his existing credit score. Or, one can choose to pay the twenty-five or thirty dollars and have even a better sense of one?s status. This is a very prudent measure that could save a lot of not only time and money but grief as well. As one applies for this pre-approval, it?s possible he might find there are some issues in his credit rating which must be taken care of before launching into the real estate market. Or he might find he is short of up-front capital and needs to save his chips for a good long while before being ready for such a step. Even if the answer comes back that he is pre-qualified, the amount of that pre-qualification might be considerably short of what he had previously in mind.

The answer therefore thrusts upon him a decision: Would he choose to go on with this lower adjusted amount adjusting upward for the amount of down payment he also has available, or would he rather choose to save and reposture himself for another consideration a year or two down the road?

So, at that point, if he chooses to go on with this real estate search, he at least can do so in a very intelligent manner. He now knows what price range he ought to be seeking.

Remember, lenders consider two aspects in coming up with one?s pre-qualification status: one is the credit history, or you say this is one?s willingness to repay the loan and keep one?s credit good. Note - there are remedies for bad credit. Second is the person?s ability to earn and repay: how good a job does the person have, how steady the income, and how good the employment history.

This pre-qualification test will make use of one ratio in particular, that of the projected cost of buying this proposed house (housing expense) over against your present monthly income level (this is all your present sources of income and usually prior to income tax). Some have referred to this as one?s ?front-end ratio?. Here there is a magic number they are looking for, and everything depends on what side of this number your figures lay.

Percentage-wise, the lender wants you to fall below 28 to 30: That is, they want your monthly housing expenses to be around twenty-five percent of your level of income. Of course, if you have a large down payment in reserve one can still fall above the thirty-percentile level and there?d be no problem.

Another ratio that they also look at is that between total indebtedness and gross monthly income (the back-end ratio). Even with as much as twenty percent down payment on the projected house, this ratio still must be below forty percent (10% down - around 30).

So you may see these two ratios together, say like 30 / 40. These are the front-end and then the back-end ratios written together. A very good set of figures is 25 / 30 for a 90% loan, and 28 / 35 is marginal, or 32/ 35 for an 80% loan.

After having received this pre-qualification analysis, one might choose to lay back and pay some bills or to save some down payment money. Again, this is the wise approach to home buying - get a pre-qualification reading.

There?s a difference between pre-qualification and pre-approval. Pre-qualification is usually considered an informal and cursory process without a full credit check and making use of a form letter with plenty of disclaimers to protect the issuing agent. But, on the other hand, a pre-approval is a more formal treatment wherein the potential buyers have made a loan application and submitted a processing fee.

The consideration by the lender therefore is more thorough, certain verifications have been made and a credit check is actually made rather than supposed. Some goes so far as to submitting it to an underwriter for review, and the borrower therefore can a real good idea of where he sets as far as the real deal is concerned. Pre-qualifications often come from mortgage brokers, but the lenders themselves issue actual pre-approvals.