Avoid Credit Surprises: Prequalify for Your Mortgage

By Karen Lawson
Home Worth Columnist

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In today's economic climate, it's important to have your ducks in a row before shopping for your next home. The process of prequalifying for a mortgage can help you determine if you're financially prepared for purchasing  a home. Free online prequalify and affordability calculator tools are helpful for getting started.

Are You Ready to Prequalify?
  Mortgage lenders typically require an income to debt ratio of no more than    38%. To estimate how much you can afford to pay for a home, use this prequalify    calculator. Mortgage calculator tools can help you plan for buying a home; establishing how much you'll need for    a down payment and closing costs and knowing what you can afford can save    time when searching for a home.

Mortgage Preapproval: What Are the Advantages?

Although mortgage preapproval does not guarantee final mortgage loan approval,  it can provide useful information before you start shopping for a new home.

 
• Identify potential obstacles to loan approval: Prequalifying allows a lender to make an initial determination about how much you can borrow with a mortgage loan. If you need to pay off debt or increase your income,  you can make necessary preparations before making an offer to purchase a  home.
 
• Establish affordability: It's easy to buy a home with  your emotions rather than with a calculator! If you buy a home you cannot    afford, you may encounter financial challenges later. You can use an affordability    calculator to get an idea of the price range for homes you can afford    to buy based on the amount of monthly payment you want to pay.
 
• Measuring Debt to Income: Mortgage lenders use debt to    income ratios for qualifying you for a mortgage. You may have great credit,   but if your total debt exceeds 38% of your gross income, you may not receive  the best interest rates or you may be required to make a larger down payment.  If you have too much debt, postponing your home purchase while you reduce  your burden may help you save on mortgage fees and finance charges when you're  ready to get a mortgage.

Prequalifying    for a mortgage is an initial step toward actual loan approval; it reveals    challenges and can suggest a course of action to assist in preparing you for buying your next home and getting a mortgage that meets your financial  needs.

Source:
  Jack  M. Guttentag Mortgage Qualification versus Mortgage Pre-Approval Jun  06, 2006 

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.