Things that Loan Officers Look for When Pre-qualifying You
As soon as you feel you’re ready to buy a home or condo, the question of do you qualify for financing or will pay all cash comes to mind for the seller and the real estate agent. Almost half of foreign investors have paid all cash for their California home purchase.
Unfortunately, if you need to obtain financing and don’t qualify according to the documents you provided the lender, it’ll save you from wasting the time of the seller and real estate agent(s) involved, not to mention your own.
Apart from being able to afford the home, the steps to pre-qualify can help you uncover other factors that impact you from getting approved for a mortgage. These other factors aren’t very clear, particularly if you have never gotten a home loan in your life.
You might believe with your income that you’ll qualify with flying colors for a mortgage, but due to the always varying mortgage guidelines, it’s best to be absolutely sure there’s zero chance of being denied.
The listing agent is paid a commission on behalf of the sellers and the best way for them to make sure they are doing the best they can for the seller is to make sure they are showing the home and negotiating with a qualified buyer instead of someone who’s casually looking.
Therefore, the majority of real estate agents will require you to not just get pre-qualified, but to get pre-approved for a mortgage before they consider accepting an offer from you or your buyer’s agent. Serious buyers are pre-approved while many non-committed buyers inquire and provide little to no proof they can successfully close.
Great reasons why you need a Mortgage Pre-Qualification
It is very wise to get pre-qualified in the beginning because this lets you know if you can actually buy the home you want prior to taking the next step and being pre-approved.
Pre-qualification:
• is an efficient method to see if you qualify for a mortgage
• doesn’t require your credit be ran
• doesn’t require copies of bank statements, tax returns, or employment verification
• is what Loan Originators primarily need for you to be pre-qualified
You can get pre-qualified easily and quickly with a mortgage broker or direct mortgage lender, but the seller or listing agent may not trust it alone to sign a purchase contract. Unfortunately, some listing agents insist the buyer pre-qualify their lender they trust before offer acceptance or immediately after signing as a condition. The following are what loan originators check to come up with a decision:
Your Income
Although your credit report once ran may satisfy the loan ‘s requirement, your income is a major factor in you being pre-qualified for a loan. Lenders will need to know how much your income is per month or per year and for how long. This allows them to then review your current debts which is the next step.
Your Debt-to-Income Ratio
The debt-to-income ratio (DTI) is a comparison between your income and your total debt. It has a large impact on whether you can qualify for a mortgage.
The loan officer will review your income and debts. They will also factor in the proposed mortgage payment, property taxes, and homeowners insurance and HOA if applicable. Ideally they want to see a low DTI.
Many lenders will allow a DTI up to 50% while others want lower DTI ratios for specific programs. For example, a 55 or higher DTI would likely not qualify for a mortgage although some mortgage brokers may have a program that fits your unique situation.
Your Assets
Lenders also want to see how much you have with regards to liquid assets so you may need to give them the details of the same. These can include CDs, stock brokerage account, savings accounts, IRA, 401k, and so on.
Your liquid assets will help the lender figure out how much you have to satisfy the funds to close and liquid reserves. Your liquid reserves are defined as assets mentioned above that you can use in case of emergency such as a job loss in order for the loan to still be repaid and on time.
People who are salaried, have a $25,000 down payment saved up, and a month or two of liquid reserves may fit best into an FHA loan. The typical Orange County home is around $650,000. FHA requires a 3.5% down payment which is $22,750 on a $650,000 home.
Overall, pre-qualification is typical and a necessary step to figure out if you qualify for a mortgage. It;s nothing to be fearful about for a first time buyers because sometimes the apartment rental process can be more strict than getting a home loan.
So, reach out to a licensed California loan originator if you’re ready to get pre-qualified or ask more questions about becoming a borrower down the road.
