What do Loan Officers Look for When Pre-qualifying You?

Category ยท First-Time Home Buyers

Published on November 12, 2019

When you initially set out to purchase a new home, the home seller and the real estate agent you engage would want to know whether you can actually afford the home or not. You would also want to know too. If anything, if you can't afford it, you'd be wasting everyone's time, including your own. Affordability aside, the pre-qualification process can help you to discover other factors that disqualify you from obtaining a mortgage. These other factors aren't always obvious, especially if you are a first time home buyer who had never obtained any home loan before. You might think you'll easily qualify for a loan, but because of the ever-changing and nuanced mortgage landscape, it's better to be 100 percent sure. Your real estate agent and the home sellers would also want to be certain that you're committed to buying the home, as opposed to someone who's just casually browsing. For these reasons, most real estate agents will demand that you get prequalified for a mortgage loan before they move with you to the next step.

Why You need a Mortgage Pre-Qualification

The very first step in getting a mortgage is to get pre-qualified. This step isn't very robust because it's only meant to determine whether you can purchase the home you desire before you make any serious commitment.

Pre-qualification:

  • is an expeditious way to determine if you qualify for a mortgage
  • doesn't require a credit score
  • doesn't require bank statements, tax documents, or other information that need verification
  • is simply the first step to get you to the next step
  • is what Loan Officers look for when pre-qualifying you

You can get pre-qualified easily and quickly with even a mortgage or bank broker, but the seller or the agent may not rely on it to process your loan. This is because a pre-qualification simply supplies the estimate of what's in your savings account and how much you make. Here are what loan officers look for to come up with such an estimate:

Your Income

Even though you can pass a credit test easily if you've been paying your taxes and repaying your loans on time, your income plays a big role in pre-qualifying you for a loan. Lenders want to know how much you are making per month or per year. This enables them to be confident that the much they lend you will not be at risk because you are making a reasonable amount.

Your Debt-to-Income Ratio

The debt-to-income ratio is a comparison between your income and your total debt. It has great bearing on whether you can qualify to get a mortgage. The lending agency will look at the much you are earning and how much you are spending on servicing your debts every month. As a rule of thumb, you should have a low DTI ratio to qualify for a loan. Some lenders accept a DTI of 50% while others want lower figures. You need to find out what DTI ratio is acceptable to your potential lender.

Your Assets

Lenders are also interested in what you own in terms of assets so you may need to provide the details of the same. These may include 401k, stock dividends, savings accounts, and so on. Your assets will assist the lender in determining how much you are able to pay to know what level of credit they can extend to you. Your assets will also show the lender that you can comfortably make the down payment and the closing payments. Some lenders may also require you to meet cash-preserve requirements. All in all, pre-qualification is a very necessary step in determining whether you can qualify for a mortgage. When you fail to pass this step, it would be a waste of time to try to apply for a loan. You can reach out to a loan officer if you are ready to get pre-qualified or are interested in more information to become a borrower in the future.

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