Getting Pre-Qualified for a Mortgage
interest rates rise the amount of mortgage financing a borrower qualifies
for can be reduced. It is possible that your maximum affordable mortgage
could be thousands of dollars less after an unprotected interest rate
spike. This reduction in available financing could very well require
you to ante up a larger down payment. If you do not have the additional
savings your maximum affordable home price could be reduced.
In order to complete a pre qualification the lender will require all of the information contained in their mortgage application. This will mean that you will have to provide them with most of the documentation necessary for a full mortgage approval. The effort is well worth it as you will then be assured of mortgage financing in the pre qualified amount.
The benefits of being pre qualified include the comfort of shopping for a home within your price range without the risk that complications will arise in the final hour. Also, there are the benefits of being able to make a stronger purchase offer without "subject to financing" conditions. This will allow your Realtor to negotiate harder and reach an agreement before a competing purchaser makes a better cash offer.
qualifications are only subject to the lenders approval of the property,
usually determined by an appraisal after a purchase offer has been agreed
to. The borrowers income, expenses, credit history and verification
of down payment have all been considered in advance.
The calculation to determine your maximum mortgage financing is based on your income and expected expenses. Assume you and your co-applicant have a combined monthly gross income of $5,000. If the mortgage lenders maximum GDSR is 32% you can spend $1,600 on shelter costs. In this case your maximum shelter cost payment is $1,600. By subtracting the monthly heating costs, condo maintenance fees, and property tax cost from the applicants maximum payment the lender can then determine the maximum mortgage payment.
Given this maximum mortgage payment figure the lender can easily calculate the maximum amount of financing you will qualify for based on your income. The procedure is simply the reverse of calculating a mortgage payment given the payment amount, amortization and interest rate.
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