Prequalify for a Mortgage Loan: Understanding Affordability
Home prices are falling, and you're thinking now or never; it's time to jump in and buy a home. Not so fast. Purchasing a home is a long-term investment, and it's important to be sure that you're financially able to stay in your home for as long as you wish. Mortgage calculator tools can help you determine if you're financially ready to purchase a home, and help you determine what you need to do if you're short on income, a down payment, or credit.
Before You Prequalify for a Mortgage
Mortgage lenders promote prequalifying as a way to gain leverage with sellers when you're buying a new home. Prequalifying means that you've met preliminary requirements for getting a mortgage loan of a certain amount. Prequalifying for a home loan doesn't mean that you've been approved, but it suggests to real estate professionals and sellers that you're serious about buying a home.When considering affordability, here are some things to think about.
Total Gross Income: Calculate your total gross income by adding up all sources of income from employment and investments before tax withholding. Certain types of income including child support and alimony do not have to be disclosed, but you can include them if you need additional income to qualify for your mortgage.
Monthly Housing Expense: This includes the monthly principle and interest (P& I) payment and estimated monthly amounts for property taxes, hazard insurance, and mortgage insurance. It does not include amounts you'll need for home maintenance and repairs, or utilities.
Monthly Payment Obligations: Include monthly payments for all credit cards, car payments, utilities, student loans, and other installment loans.
Down Payment: The larger your down payment for a home, the less the perceived risk to your mortgage lender. Less risk can mean lower finance charges for your home loan.
Your Savings: As a renter, you can call your landlord when there's a plumbing problem or the basement floods. As a homeowner, you'll need to pay for home repairs and maintenance. It's also important to save in the event of unemployment, illness or events causing a loss of income.
Free online mortgage calculator tools can help you determine how much you'll need for a down payment, and estimate how much you can afford to borrow. This is useful for establishing a price range for affordable homes. There's more to buying a home than getting the keys; you'll want to make decisions that promote many years of comfortable living in your new home.
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