Prequalify for a Mortgage Loan: Getting a Head Start

By Karen Lawson
Calculators for Mortgages Columnist

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If you're like many home buyers, you look at homes first and deal with mortgage lenders once you've found the place you want. Instead, it's worthwhile to do some research first. Mortgage calculator tools can provide valuable information for prequalifying for a mortgage loan. If you're not tech savvy, don't worry. Online calculator tools are easy to use and a great resource for determining your readiness to buy a home or refinance your current mortgage. Estimating Monthly Housing Expenses
Mortgage companies use a different way of calculating housing expenses than most of us do.  If you're used to paying rent, you may consider your rent payment your monthly housing expense. Depending on how much you put down on a new home, you may also have to pay mortgage insurance premiums. There are other costs of home ownership as well, such as property tax and hazard insurance. These items are often added to your monthly principal and interest (P and I) and then paid by your lender. Lenders do this to be sure that your taxes and insurance get paid on time. Charges for property taxes and hazard insurance can vary considerably; the T&I portion of your payment can add hundreds of dollars to your monthly P&I payment.  

It's Your Choice: Make Lower Payments or Save on Interest
It's easy to focus on getting a mortgage with the lowest monthly payment, but reducing how long it takes to pay off your mortgage can offer long-term savings. Here's an example: If you have a $250,000 mortgage with P&I payments of $1539.29 at 6.25% interest for 30 years, you'll pay approximately $304,145 in interest. If you take the same mortgage amount (with a 5.75% rate--15 year rates are lower than 30 year rates) and a loan term of 15 years, you'll pay $123,684 in interest. Your P&I payments would increase to $2,076.03, but you would save $180,461! Using mortgage calculator tools, considering various scenarios can help you formulate a plan before contacting mortgage lenders.  

Prequalifying Calculator Helps Avoid Surprises
You've heard it from your family, friends, and coworkers. You have to buy a home! Prices are down! Rates are reasonable! Using a mortgage affordability calculator can help you see if you're financially ready to buy a home. Try it and you may be surprised. And even getting bad news beats making an offer on a home and finding out that you can't qualify for the mortgage you need.  

If you're not yet ready to buy a home, you can use mortgage calculator tools to create a plan for reducing debt and increasing savings. Then you'll be ready for a future purchase.



About the Author
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

Date :2008-08-12