Mortgage Prequalification FAQs | What You Need to Know
One of the biggest topics we hear questions about is prequalifying for home loans. The prequalification process gives you an idea of how much you can borrow for your new home. However, not all lenders are the same, and not every method works for everyone. Understanding how this process works could be the difference between you and your dream home.
How much do I qualify for?
Short answer – it depends. A loan officer considers many different factors when prequalifying you for a mortgage. Anyone telling you one specific amount you qualify for could be doing you a disservice. You have to look at all the different contexts, you could qualify for a lot more home than you think.
What affects what I qualify for?
Many factors can affect what loan amount you qualify for. Credit score, debt-to-income ratio, and financial history are just some of the things taken into account.
Lenders consider the carrying costs of your new home in your loan amount. Carrying costs are the ongoing expenses associated with owning a property. Common examples include homeowner association fees for your new home and high insurance payments. Every combination of home and individual buyer is unique, so one must take everything into account.
What Down Payment Options are Available?
The loan program you use and the purchase price of your new home will affect the amount of your down payment. Many people think first-time homebuyers must put down 20% for a conventional loan. However, the minimum is actually 3% for a traditional home.
For a loan with the FHA (Federal Housing Administration), the minimum down payment is 3.5% of the purchase price.
What Are the Benefits of a Direct Lender?
Using a direct lender, instead of another type of mortgage lender, gives you better access to personal consulting. We can work with you individually to serve your unique situation. Mortgages are not one size fits all, different needs may warrant different types of loans, and a direct lender gives you more direct attention.
Direct lenders like Chris Doering Mortgage do not have the same overlays that other lenders have imposed. Overlays are additional guidelines that decide your loan qualifications. Typical overlays include a certain debt-to-income ratio, property restrictions, or minimum down payments. These make it harder for you to qualify for the mortgage you want.
Direct lenders typically have more consistency amongst their underwriters. Underwriting is an art, not a science. Interpreting guidelines can be different from lender to lender. A direct lender like Chris Doering Mortgage has the advantage of working with the same underwriters every time.
Other types of lenders work with underwriters that they don’t know and may enforce more overlays. We like to say our team of underwriters are your blockers, not your tacklers. We want to help you get your new home, not make it harder for you.
How Can a Loan Officer Help Me Qualify for a Better Mortgage?
Loan officers can work with a variety of factors to improve your debt-to-income ratio and get you the mortgage you want.
Some of the actions we can take include buying down interest rates on the loan, introducing seller credits, paying down current debts, or changing your down payment amount.
Another tool at our disposal is introducing a nonoccupying co-borrower. They are an individual who will join the mortgage loan, take responsibility for payments, but does not live in the house. A nonoccupant co-borrower can help increase your total income for the debt-to-income ratio.
Working with a mortgage lender during prequalification can help you get the mortgage you need for your dream home.
Where do I Start in the Prequalification Process?
Prospective homebuyers should begin with a credit application. This will help us understand where to start with your mortgage. Contact the Chris Doering Mortgage team and we will walk you through the prequalification process and get you into your dream home today.