Top Mortgage Pre-Approval Questions Answered

Mortgage Pre-Approval Question One: When thinking about buying a home, where should I start?

You should always start by talking to a lender If you do not know how much home / mortgage you can afford, you could be very disappointed when you find the home of your dreams, and the payments are not in your budget. Most experienced realtors will require this of you before they start showing you properties.

Mortgage Pre-Approval Question Two:  Should I wait to buy a home until I have a 20% down payment?

Not necessarily.  In may make good financial sense to purchase a home with less than a 20% down payment - mortgage insurance provides that opportunity.  Mortgage insurance is sometimes misunderstood, but it gives many people the chance to own a home sooner than later without a large down payment.  Typically, the amount of time it takes for  someone to save 20% down takes several years. In that time, they have been paying rent when they could have started building equity in their own home. Another downside is that in many areas, home prices are increasing. While waiting to purchase a home as you save towards a larger down payment, you’re not building equity in a home that you could own AND you could pay more for the same home.  Considering a conventional loan with mortgage insurance or government-type financing (FHA, VA, USDA) may be the way to go.   

Mortgage Pre-Approval Question Three:  How much of a monthly mortgage payment can I afford?

Talking to a trusted lender is always the preferred method for figuring out how much you can afford. If you want a quick idea of how much you can afford on your mortgage every month consider this:

1. Add together all of your minimum monthly payments for credit cards, auto loans, child support, alimony, student loans, etc. (you do not need to include monthly expenses such as car insurance, gas & electric, cable, gym memberships, etc.)
2. Take your yearly income before any taxes are taken out, and divide that by 12 to get your monthly income
3. Multiple your monthly income by 0.4 (for example if your monthly income is $6,000 X 0.4= $2400)
4. Take the number from “C” and subtract all your monthly obligations from “A”. This gives you a rough estimate of how much you can afford monthly for a mortgage payment (principal and interest).

If you have any questions that were not answered by this blog, please feel free to give us a shout! We are always here to help our customers become educated and feel comfortable before they commit to a mortgage.