Getting
Pre-Qualified for a Mortgage
Rate
Commitment
Many Lenders will guarantee an interest for
a client while they are shopping for a home.
The purchaser is then protected if interest
rates rise during this shopping period. This
can be an extremely important advantage, it
will not only save the borrower money but
could also save them from loosing their dream
home when they finally find it.
When
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.
A rate commitment usually requires a full
pre qualification of the applicant. Rate commitments
vary from one mortgage lender to another.
Some will guarantee the rate for 30 to 60
days or longer. If rates rise during the commitment
period the borrower is assured of either the
lower of the committed rate, or the rate one
day before closing. Some mortgage lenders
offer commitments that guarantee the lowest
market rate during the commitment period,
or the committed rate. Your Mortgage Consultant
can pre qualify your with the right mortgage
lender and insure your rate commitment meets
your needs.
Pre qualification
Pre qualification means that your lender has
reviewed and verified all the available financial
information detailed in your application and
has determined the maximum amount of financing
you can afford. A pre qualification is different
from a simple rate commitment. A rate commitment
is where the lender guarantees that "if"
you qualify for a mortgage they will offer
the agreed upon interest rate. Agreeing to
an interest rate does not require the lender
to complete the preliminary underwriting while
a pre qualification does.
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.
Pre
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.
A pre quantification is simply a calculation
of the the amount of mortgage the applicant
"may" qualify for. The gross income
amounts used are not verified, nor is the
applicants employment, credit history or net
worth. Pre-quantifications are often confused
with a full pre qualification and should be
used as a preliminary guide only.
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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