Determining your borrowing power
One of the first steps in establishing a home buying strategy is understanding how much of a mortgage you can afford. For this a simple pre-qualification from a reputable loan officer will get you headed in the right direction.
You need to understand the difference between two common terms used to determine your borrowing power.
The first is Pre-Qualification. A Pre-Qualification is a basic calculation of how much of a mortgage a lender will let you borrow based on how much your monthly income is and how much monthly debt you have. This is fine for you to use to begin to understand the basic price range that you are qualified to purchase.
This does not give you the full picture though because it does not include a credit report which may reveal discrepancies that need to be fixed in order for you to get the mortgage you want. Many times if your credit score is on the lower end, you may only qualify at a higher interest rate and thereby qualify for a smaller mortgage. On the other hand if you have a very high credit score you may qualify for a lower interest rate and qualify for a larger mortgage and increasing your borrowing power.
Before you spend too much time and energy based on your pre-qualification you will want to acquaint yourself with our second term which is Pre-Approval. This is what you want to have in place before you start looking for a home.
With a mortgage pre-approval means that you will have applied for a mortgage, provided basic documents to verify your income, and that your credit report has been pulled. Your application and other information are then entered into a system called "Desktop underwriting" or reviewed by a mortgage underwriter in person. As long as none of your circumstances change prior to your purchase, this will give you the most assurance to your borrowing power.
You can begin this process by clicking here to request a Free Mortgage Consultation with one of our trusted mortgage partners.