Home Buying: Financing Qualification and Approval

When most people think about buying a home, the first thing they usually do is immediately start looking around at homes that are on the market.  While there isn't necessarily anything wrong with this, if you are a serious buyer, the first real step in the process should be making a determination of what you can afford to spend for the property.  After all, it doesn't make a lot of sense to spend time looking at homes only to find out later they are not in a price range of affordability.   

This page provides answers to some commonly asked questions about the first steps in obtaining financing to purchase a home.

A.  How much can I afford?

If you search the internet, you may find online "real-time" loan qualification calculators that give you an estimate of how much house you can afford based on various information you enter such as your annual income, approximate credit card debt, car payments, etc.  While some of these estimators produce a reasonable result, the major shortcoming with these tools is that there are thousands of different loan options on the market for homebuyers of all income levels and credit scores, and the terms of these different loan products can vary drastically.  No simple loan qualification calculator can accurately evaluate all the necessary factors.  Accordingly, these online calculators can over-estimate loan qualifications for some people and under-estimate for others.

There is no single, simple formula for determining how big of a loan you might qualify for or at what interest rate.  In addition, while you might qualify for a certain amount, there may be a comfort factor in not selecting a house that will be priced at your highest qualification limit.  Afterall, homeownership should not cause anyone to be "house poor."   

For these reasons, it is advisable that you speak with a reputable loan officer or mortgage broker who can advise you of your various options in light of your particular financial circumstances and goals.  If you do not know a loan professional who you trust, please contact me and I will be happy to refer you to a reputable local loan officer who can help you determine how much you can afford.

B.  How do I get pre-qualifed / pre-approved for a loan? 

A loan officer or mortgage broker can provide you with a pre-qualification or pre-approval for a loan amount after gathering certain financial information from you.  As mentioned above, getting qualified or approved for a certain loan amount is important first step in the home-buying process so that you have a general idea of what price of homes you should be looking at.  If you would like a recommendation of a local loan officer to speak with in order to get pre-qualified or pre-approved for a loan, please contact me, and I will gladly provide that for you. 

It is standard practice for buyers to include a copy of a pre-qualification or pre-approval letter from a lender with the offer of purchase that will be submitted to the property's seller.  Any purchase offer not accompanied by such a letter usually will not be viewed as a strong bona fide offer, and in most cases will be rejected, which is another reason why receiving a loan qualificaiton or approval prior to beginning the home search is important. 

C.  What is the difference between "pre-qualification" and "pre-approval"?

Pre-Qualification is the process by which a loan officer or mortgage broker determines how much you might be qualified to borrow based on your stated income, assets and liability.  This is different from a loan application and is based on unsubstantiated financial information.

Pre-Approval is a more substantial step than pre-qualifciation because the loan officer or mortgage broker pulls a credit report, evaluates financial circumstances, and issues a "pre-approval" for the loan.  Although loan approval is conditioned upon certain factors such as verification of employment, assets, liabilities, etc. (formal commitment to fund the loan will come from the lender after contract ratification and all the necessary financial verification documents are reviewed), when a pre-approval letter accompanies a purchase offer, it is a much stronger demonstration of the homebuyer's financial ability to actually obtain financing for the purchase. 

Sophisticated sellers or their representatives understand the difference between pre-qualification and pre-approval and will typically give more consideration to offers accompanied by pre-approval letters.    

D.  How can I estimate mortgage payments?

You can estimate mortgage payments by using this site's Mortgage Calculator available at the Mortgage Center, which also includes a summary average of prevailing market interest rates.  A payment estimator is also included on the listing detail page of every MLS-listed property searchable on this website.

E. What special financing programs might I be eligible for?

Certain homebuyers may be eligble for special government financing programs and/or First-Time Homebuyer incentives.  For more information on special financing programs that may be available, click on one of the following links: