The easiest way to find out what you qualify for is by meeting with a mortgage professional who will take the time to give you a free financial and credit analysis. Your mortgage professional should tell how much you qualify for based on your income in your first meeting. Your mortgage professional should be able to tell you if your debt to income ratios are to high, if your credit scores are too low and/or if you need to have money for a down payment. All of this should be accomplished in your first meeting.
Make sure you take your tax returns, pay stubs, asset information and other relevant information that will help your mortgage professional help you qualify for. Remember that your mortgage professional must provide you with disclosures or a credit denial within 3 days after running your credit. I hope this helps you.
Determining your maximum available loan amount depends on one thing and one thing only: the lender’s assessment of your ability to repay an amount of money. So, in essence, when we ask “how do I know what I would qualify for,” we are asking “how much can I convince the lender I can successfully repay based on their guidelines?”
Numerous factors enter into this decision for the lender. Criteria can even vary from company to company. For instance, one lender might have a very strict policy regarding calculating income requiring full tax returns, etc…, while another lender may simply allow the use of the average deposit amount from your bank statements. Depending on which lender you were attempting to do business with, you might have two very different determinations of income based on those two scenarios and thus two different levels of ability to repay a certain loan amount. The most important thing to understand is that there are not just 3 or 4 factors that lenders consider. There is a large matrix of information that must be obtained on your loan file before the lender can make a commitment.
This matrix is dynamic, meaning that two people with the exact same income will not always qualify for the exact same amount. The same is true of two people with the same credit score, the same assets, the same down payment, the same birthday, and the same hair stylist. You are evaluated as a “package deal” either by a computer or by a person. Just like an Auto Magazine rates a car on many different aspects of its appeal, utility, reliability, and performance, the lender is rating you in the same manner. The higher the overall rating, the more for which you will qualify.
As for the “easiest way” to find out, this is a question that comes up frequently. In many cases, assuming that the rest of your data is fairly normal, the amount will be based primarily on income. Furthermore, there may be caveats such as “only with 5% down,” and so on. In the current market, which is rapidly changing in terms of guidelines and program availability, the only way to be sure you are getting an accurate answer regarding your qualifications is to consult with a mortgage expert. In some cases, especially when the client’s data is strong and they know they will not be shopping above a certain price range, I am able to determine eligibility without the need for the lender’s underwriting process. Still, the safest and most accurate way to determine level of qualification is to have your entire package of data underwritten by the lender.
More simply, ask an expert. Furthermore, decide what price and payment you are comfortable with. Communicate this to the mortgage broker so they can have the lender underwrite the file with this data plugged in. At that point, it will either be yes or no. If it’s a yes, then you’re ready to move forward. If it’s a no, then the loan amount, or the interest rate, or the discount cost, or your amount of proved income, or some other loan factor will need to change. Most often this is a decrease of the loan amount.
One last note is that there is a useful tool on this website: The Application Simulator. Unlike many “get quotes from lenders” websites, this tool does not require personal information or a credit report and will give you a general idea of your qualifications with as many scenarios as you want to explore. You have the option to request quotes from lenders in which case the application simulator service will collate quotes from lenders for you without the lenders ever receiving your contact info. It’s really a long overdue tool that prevents you from having to endure multiple credit checks and numerous marketing calls from lenders to whom your information has been sold.
When qualifying for a mortgage a lender will evaluate the risk by looking at 3 criteria:
Loan to value of the subject property – High loan to value represents greater risk to the lender and with declining property values we have seen a much higher focus on this. The traditional benchmark is 80% LTV or lower, the point at which conforming loans required PMI.
Debt income of the applicant(s) – Debt to income is calculated by the ratio of verificable income to the debt payments shown on your credit report and including the new property payments. This figure should be below 50%, preferrably under 40%.
Credit history – Credit history is a much thornier issue and the focus of a great deal of attention in today’s environment. A good score should be above 680 with no late payments for mortgages.
There are lots of websites that feature mortgage calculators to give you a general idea of how much home you can afford. All you have to do is enter some information on your income, your debts and an interest rate you believe you qualify for and you’ll get a home price recommendation.
Of course you can always inquire with a mortgage company that you are comfortable with and they can run some numbers and give you some answers. This is probably your best bet if you want to get some concrete numbers. Keep in mind that there are lots of different programs available so if you don’t get what you’re looking for at first – try again!