Understand Your Purchasing Power

There are only a few things more frustrating when searching for a new home than falling in love with a house that simply doesn’t fit your budget. So before you begin looking for a new home, work with a mortgage company to learn more about how to get pre-qualified and/or pre-approved. And be sure you understand the differences between those seemingly similar terms.

Pre-qualification. Starting with this step is easy, and it provides you with an estimate of how much financing you may be eligible for. Then you can talk with your agent so he or she can select homes that fit both your preferences and your price range. A pre-qualification is simply just running numbers for you, so you should really get a full fledged pre-approval that includes a credit check. Most loan programs these days are so credit-score sensitive that a lender can’t really tell what programs you qualify for with out having your credit score. This is especially true if you are trying for 100% financing.

If you've never been pre-approved before, you might be pleasantly surprised at your loan estimate. While pre-qualification is a good guideline, it's just that – a guideline. You'll also need to look closely at your monthly income and expenses. Consider whether your future mortgage payment will fit comfortably into your budget; and don't feel it's necessary to spend the full amount for which you've been pre-qualified. A good rule of thumb is that your mortgage payment should be no more than 25 to 33 percent of your monthly gross income, and your total debt-to-income ratio should be less than 38 to 40 percent of your gross income.

Learn how to figure your housing budget.

If you didn’t complete a full pre-approval during your first talk with your loan officer, it would be smart to complete the pre-approval process now that you have established a budget. The lender can inform you of any special language you need to include in your offer to purchase based on the loan program you have selected. Often a seamless step, being pre-approved can be the advantage you need if you're bidding against another buyer who is not. Pre-approval also speeds up the actual loan process once you're in in contract with a particular property.

Here's some additional information to explain the differences between pre-qualification and pre-approval of your loan:

Pre-Qualification

• Based on preliminary information regarding your income, debts and assets.
• Information is usually provided verbally to the lender by you.
• Once a purchase agreement is executed, you must complete a loan application.
• There's no fee.

Pre-Approval

• The same as the pre-qualification except you take it a step further and pull a credit report.
• The loan officer underwrites the file with desk top underwriting software when applicable.
• You are informed of the documentation required to process your loan should you choose to go further.

And then there’s the loan commitment:

• You provide documentation of income, assets and debts.
• The information you provided is reviewed and an underwriter approves the loan.
• Your mortgage is fully approved pending a sales contract and property appraisal.

Learning what you can afford is easy and effective, thanks to our home mortgage partner. We'll help you understand your credit, debt and income and determine the loan amount available to you.

Contact a helpful mortgage representative to get pre-qualified. And if you're serious about buying a home, call a loan office to learn how to get pre-approved .