Pre-Qualification And Pre-Approval
Many buyers apply for a loan and obtain approval before they find the home they want to buy. Why?
Pre-qualifying will help you in the following ways:
- Generally, interest rates are locked in for a set period of time. You will know in advance exactly what your payments will be on offers you choose to make.
- You won’t waste time considering homes you cannot afford.
Pre-approval will help you in the following ways:
- A seller may choose to make concessions if they know that your financing is secured. You are like a cash buyer, and this may make your offer more competitive.
- You can select the best loan package without being under pressure.
How Much Home Can You Afford?
There are three key factors to consider:
- The down payment
- Your ability to qualify for a mortgage
- The closing costs associated with your transaction.
Down Payment Requirements:
Most loans today require a down payment of between 3.5% and 5.0% (conforming) depending on the type and terms of the loan. If you are able to come up with a 20-25% down payment, you may be eligible to take advantage of special fast-track programs and possibly eliminate mortgage insurance. Some loans require little or no down payment &/or little or no documentation of earnings (non-conforming). These loans may have higher interest rates and other loan associated costs.
Closing Costs:
You will be required to pay fees for loan processing, escrows and other closing costs. These fees must be paid in full at the final settlement, unless you are able to include them in your financing. Typically, total closing costs will range between 2-5% of your mortgage loan.
Qualifying For The Mortgage:
Most lenders require that your monthly payment range between 25-28% of your gross monthly income. Your mortgage payment to the lender includes the following items:
- The principal on the loan (P)
- The interest on the loan (I)
- Property taxes (T)
- The homeowner’s insurance (I)
Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income. These key factors determine your ability to secure a home loan: Credit Report, Assets, Income, and Property Value.
How Much Home Can You Afford?
Use the following to chart to determine your monthly principal and interest payments at various interest rates for either a 15 or 30-year term.
INTEREST RATE FACTORS PER $1,000 |
Interest
Rates |
Term
15 Years |
Term
30 Years |
|
4 |
7.40 |
4.77 |
4 ¼ |
7.52 |
4.92 |
4 ½ |
7.65 |
5.07 |
4 ¾ |
7.78 |
5.22 |
5 |
7.91 |
5.37 |
5 ¼ |
8.04 |
5.52 |
5 ½ |
8.17 |
5.68 |
5 ¾ |
8.30 |
5.84 |
6 |
8.44 |
6.00 |
6 ¼ |
8.57 |
6.16 |
6 ½ |
8.71 |
6.32 |
6 ¾ |
8.85 |
6.48 |
7 |
8.99 |
6.65 |
7 ¼ |
9.13 |
6.82 |
7 ½ |
9.27 |
6.99 |
7 ¾ |
9.41 |
7.16 |
|
|
Interest
Rates |
Term
15 Years |
Term
30 Years |
|
8 |
9.56 |
7.34 |
8 ¼ |
9.70 |
7.51 |
8 ½ |
9.85 |
7.69 |
8 ¾ |
9.99 |
7.87 |
9 |
10.14 |
8.05 |
9 ¼ |
10.29 |
8.23 |
9 ½ |
10.44 |
8.41 |
9 ¾ |
10.59 |
8.59 |
10 |
10.75 |
8.77 |
10 ¼ |
10.90 |
8.96 |
10 ½ |
11.05 |
9.15 |
10 ¾ |
11.21 |
9.33 |
11 |
11.36 |
9.52 |
11 ¼ |
11.52 |
9.71 |
11 ½ |
11.68 |
9.90 |
11 ¾ |
11.84 |
10.09 |
|
|
|
- Find the appropriate interest rate from the chart above.
- Look across the column to the appropriate term to determine your interest rate factor.
- Multiply the interest rate factor by your loan amount in $1,000s.
AN EXAMPLE |
Interest Rate = 6 ½
Desired term = 15 years
Interest rate factor per $1,000 = 8.71
Mortgage = $200,000
Monthly Principal & Interest = $1,742 (8.71 x 200) |
|
Add your monthly insurance premium and your property tax to your principal and interest to determine your total monthly payment.
I am providing this information as a guide. I strongly recommend that you contact our mortgage specialist.
Origination Fee
DEFINITION: Origination Fee – A fee paid to the mortgagee for paying the mortgage before it becomes due. Also known as prepayment fee or reinvestment fee.
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