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Pre-qualification
Loan pre-qualification is the process that determines how much loan a prospective homebuyer may be able to borrow before he or she applies for a loan or is guaranteed a loan approval. Pre-qualification, like the name suggests, is the step that customers take to see if they even have a chance at applying for a loan.
At this time, the loan officer will take down some information, at all needed, to make a tentative decision whether the customer should go forward. During the pre-qualification process, the borrower usually does not need to state their social security number or other forms of identifiers, so it is not yet possible to check credit. The lender will ask the borrower to provide their employment, income and asset information as well as the amount of current monthly debt. Moreover, the borrower is usually asked about their general credit worthiness.
A loan officer can quickly match the borrower’s income to how much they are pre-qualify for a certain amount of loan. For instance, if the borrower makes $15 per hour or $2600 per month, this is calculated into an industry-standard ratio of debt to income of 36%. So for a $2600 per month income, the borrower would be pre-qualified at a total debt of $936, including any monthly payments such as car and minimum amount on credit card along with the proposed payment of principal, interest, taxes and insurance.
There are many benefits to getting pre-qualified for a loan. The person who will benefit the most is you. Usually new homebuyers would ask a simple question of how much they loan can they get? Many loan officers get stumped on this question because there are just way too many variables such a credit history, income, debt, special mortgage and each type of mortgage has its own guideline. The only way to answer that question is to go through the pre-qualification process. It is actually a simple process, but a very important one. This is the step where you formally apply for a mortgage and it gives every party a clear sense of the direction they should be headed.
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