Tom's Texas Realty

Why You Should Get Pre Qualified for a Home

What is Pre Qualification for a Home?

Pre Qualification means that a lender has reviewed your financial status and are able to lend you the money to buy the house. Obviously if you are paying cash, you would not need a pre qualification letter. Lenders will take a look at your debt to income ratio and your credit score as the biggest factors.

 

Lending Basics

The higher your credit score, the lower your interest rate will be. There are different increments lenders use to determine which bracket you fall into. Without going into detail, most lenders require at least a 540, I would recommend getting above a 680 if at all possible. In my experience that is where the best break in interest rates occur. If your score is lower than this, don’t hesitate to reach out to us for a lender. A good lender can take a look at your situation and let you know what steps to take to put you in position to buy a home. It may not take as long as you think.

If you have a lot of debt, lenders won’t lend you money. The lender wants to make sure you can pay back the loan. Let’s say you have $4,000 a month income each month and $2000 in fixed expenses each month outside your residence. It’s unlikely a lender will lend you money when they know you’re payment is going to be $1500 a month and $500 is all you’ll have left to live on.

For self employed individuals lenders typically require 2 years of tax returns. As a self employed individual, you may be comfortable with a house payment after a year of being self employed. In that instance I have seen married couples shift all the debt into the self employed individuals name and put the loan in the name of the spouse that is working a salaried job or has been self employed longer.  This seems dumb that shifting the debt allows someone to qualify for a loan but that’s the law for you.

Why Should I get Pre Qualified?

Pre qualification allows you to know exactly how much the lender is willing to lend so you don’t put an offer and spend money inspecting a house without being able to buy it.  This also give you confidence in your offer and it gives the seller confidence to accept your offer. In our current market, I have not seen an agent accept an offer without a pre approval letter.

What’s Next?

After you are pre qualified it’s time to go house shopping! You’re Realtor will assist you in finding the right home. If you don’t have one, give us a call, it’s free and takes all the guess work out of house shopping!

 

Pre Qualification VS Pre Approval

These terms are commonly mistaken even with Realtors. Pre Qualification is when a lender has reviewed your initial paperwork such as bank statements, income, debt and assets.  It is the first step in lending. A Pre Approval is when the lender has sent the file through underwriting.  Underwriting is basically the term used for the department that reviews the file and says yes, we will for sure give this person money.  That’s as official as it gets.

 

As always, for all you’re buying and selling needs give us a call at 682-233-4416