If you are thinking about looking for a home mortgage loan, you can help yourself by going through what many experts call “self pre-qualification”. In this case, you would take some specific steps to prepare yourself so that you will be approved for the loan and not denied. For starters, you want to do everything possible to get your finances in order so you have a solid credit score.
When you begin talking to various lenders, one of the first things they will do is run your credit report. Depending on your credit history and credit score, you would be approved or not. In addition, your credit will determine the type of loan you secure, as well as the interest rate. Obviously, the better your credit is then the better mortgage loan and the lower interest rate. Therefore, start by pulling a copy of your credit report from all three reporting agencies, which consist of TransUnion, Experian, and Expedia. From there, you can see what creditors are reporting negative information so you can go through the
process of getting your bills paid and your score improved.
Next, the self pre-qualification process would involve you looking at the loan-to-value ratio. This ratio is the difference between the money being borrowed versus the value of the property being considered so it can be used as collateral for the loan. Keep in mind that the value used for the loan-to-value ratio is a calculation on new purchases that would always be lower than the home’s purchase price or the appraised value. For this ratio, if more money were needed beyond the mortgage, this would usually come from a cash down payment.
Next, the lender is going to look at the debt-to-income ratio. For this, your income would be weighed against the debt to determine if it falls within a standard 38% to 40% ratio considered the industry norm. For your part, you want to lessen your debt as much as possible, which makes the ratio swing to your favor, again a part of the self pre-qualification. Some lenders are a little bit more flexible but this also means you would likely pay a higher interest rate.
Finally, after going through all of the above, you would be able to determine the amount of home you can afford. While a lender can provide guidance, remember that you can make this determination on your own. One of the easiest methods is to conduct a search on any search engine such as Google.com, looking for a mortgage calculator. With this, you would be able to list all the required information and come up with a solid figure. Once you know what you can afford, you can then begin the fun process of shopping for your new home.