| Though
you may be willing to spend a certain amount, the real
determination of how much house you can afford is driven
by how much a lender calculates you can afford. So before
you begin to search for the perfect house, it is very
important to begin the home buying process by getting
pre-approved. Getting pre-approved for a home mortgage
loan will provide you with a preliminary statement on
the size of loan for which you can qualify. Knowing
this, you can then focus your home search.
In general, lenders allow your total monthly housing
costs to go as high as but not more than 30 percent
of your gross monthly income. The second requirement
is that not more than 36 percent of your gross monthly
income can be tied up in the total monthly house payment
and payments on long-term debt.
Lenders use slightly different formulas for determining
the "total monthly house payment.” These
costs generally include the mortgage principal and interest
payment, property taxes as a monthly sum, and hazard
insurance as a monthly sum. These four items are referred
to as PITI (principal, interest, taxes and insurance).
Other costs may be included in this calculation if your
down payment is less than 20 percent or if you are responsible
for homeowner’s association dues. The calculations
may vary from lender to lender, but will provide you
with a gauge.
The Pre-approval Letter
Your friends and family may know you to be reliable,
dependable and someone who pays bills on time, but all
others in a real estate transaction will require you
to prove it. That’s where pre-approval comes in.
A pre-approval letter is more reliable than a pre-qualification
letter. In the pre-approval process, a lender will examine
your finances and will make a preliminary statement
on the size of the loan for which you’ll qualify.
Pre-approval is an involved process. The lender will
take all pertinent information regarding your finances
and perform an extensive check on your current financial
status. This will ultimately give you the exact amount
that you will be eligible for (depending on what type
of loan you decide to go with). Being pre-approved lets
the seller know that you have gone through an extensive
financial evaluation and there should be no unexpected
obstacles to buying the home. It makes your offer much
more powerful.
Pre-approval gives you a very
good indication of:
• How much down payment you’ll need
• Your closing costs
• Your monthly payment (including PITI: principal,
interest, taxes and insurance)
• The type of loan for which you qualify and best
suits your needs; and,
• Special programs for which you may be qualified,
including those for veterans, first-time buyers, teachers,
etc
To become pre-approved you will need to provide a lender
with the following:
• Your employment and income history (including
recent pay stubs)
• Your monthly debts
• The amount and source of cash available for
the down payment and closing costs
Pre-approval letters are not binding on the lender,
they are subject to an appraisal of the home you want
to purchase and are time sensitive. If your financial
situation changes, interest rates rise or a pre-determined
date passes, the lender will review your situation and
recalculate your maximum mortgage amount accordingly.
You can research lenders yourself and ask them to pre-approve
you.
Contact
us for more info on mortgage pre-approval in Saratoga
Ca
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