Home Mortgage Qualifying Info

The process of obtaining home mortgage is explained below:

Home Mortgage Terms, Closing Costs, FHA Mortgage Information, How to Pick a Home Loan, Mortgage Calculators

Common steps in the home loan process:

• Pre-Qualification for the loan amount
• Getting Pre-approval for mortgage - affected by:
• Credit Report
• Payment History
• Number of Creditors
• Outstanding Debt
• Number of Inquiries
• Bankruptcy/Collections/Judgements
• Credit Report Errors
• Closing Costs
• Locking In
• Loan Types

The pre-qualification process

Being pre-qualified means you have met the conditions necessary for taking a mortgage. Primarily pre-qualification enables you to determine albeit approximately, how much can you borrow and the necessary documents you need to apply for a home loan. Although some people accompany an offer for a home with a pre-qualification letter, we urge people to take the addtional step of being pre-approved since it strengthens the offer and increases the chance of it being accepted. The primary difference between pre-qualification and pre-approval is the running of your credit score. Pre-qualification usually only incorporates verbal information from the applicant so it carries very little weight with sellers.

Now they will calculate your average income which is the average of the last two years of your earnings. If you do not have steady income in the last two years, your loan options may be limited. After establishing your average income, they deduct your average monthly debts. This helps the martgage company establish your debt/income ratio.

When you are ready with all the required information, submit it to the mortgage officer, they will in turn submit your data into an automated underwriting system. This process should take not more than 5 minutes and will result in an estimated dollar amount for which you will qualify for a loan and establish a budget for your home search.

Factors considered for the Pre-approval Process

This is the single most important factor affecting whether you receive a loan, and ultimately the loan amount. The Credit Report will show all your credit history. This will include information about your income, debts, credit payment (for the past several years), whether you have filed for bankruptcy, collections accounts, judgments filed and even previous addresses and employers. Depending on the credit report, a credit score is calculated which takes into account factors like number of creditors, outstanding debt, payment history and the number of inquiries. Under the Fair Credit Reporting Act, you have the right to receive a copy of your credit report. The credit report contains all the information in your file at the time of your application. It will also have the name of anyone who inquired about your credit history for any purpose in the last two years

Keeping a clean credit history is important. However, creditors occasionally make mistakes and identity theft is a problem. You will want to inquire into your own credit history prior to applying for a loan so you can address issues prior to starting the application process. If you determine that your credit history has errors, Under the Fair Credit Reporting Act, both the Credit Reporting Agency and the company that provided the information to the Credit Reporting Agency have the responsibility for correcting the inaccurate or incomplete information in your credit report. The three reporting agencies are Experian, Equifax and TransUnion. You will want your credit history and score from each. Usually you can dispute errors online with resolution often in 30 days. In the case of identity theft, you may have to prove that the account does not belong to you.

Factors affecting Credit Report (negatively)

Previous Payments:

Your payment history is very important in determining your credit score. Late payments and collection accounts will be greatly detrimental to your credit score. Even if you pay all of your bills on time, it is wise to pay more than the minimum to lower your overal debt.

Mortgage loan companies prefer that you have a minimum of open credit accounts with balances. The exception being when you have very large credit lines available which would indicate credit worthiness. It is wise to never exceed 50% of your total credit line.

The total amount that you owe creditors, credit cards, car loans etc. The higher the amount, the less you will qualify for when applying for a mortgage.

This is the number of times your credit score has been checked in a period of time. The more frequent, the lower your score will become. It is assumed that frquent inquiries would indicate that you are opening other credit accounts at the time of applying for the loan which would be regarded negatively. The impact on your credit score is temporary however and it should recover promptly soon after the inquiries stop.

Any of these three, singularly or combined with other will have a negative impact on the credit score. There are some loan products that offer more flexible guidelines to enable a borrower to be approved even with negative credit history. If you pay off the collection accounts and judgments prior to loan closing, you may be considered for loan approval. Note that every payment made or new debt incurred, your credit score may change. Even if you can be approved for a mortgage with a relatively low credit score, you will likely have to pay a significantly higher interest rate. A word of warning, prior to applying for a mortgage, do not pay off completely any credit account that you have a late payment. Creditors frequently only report late payments to the credit reporting agencies when the loan is paid in full.

Closing Costs for a Purchase: The typical closing costs you could expect are indicated below. These figures are mere estimates and vary in your case depending on several factors such as your area, lender, credit history etc.

Appraisal Fee: You need to pay for an appraisal for an estimation of the value of the property you want to purchase. You need to pay for this at the time of application.