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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