Pre-qualification VS. Pre-approval:

• To qualify for a principal residence loan, most lenders require that your monthly mortgage payment including principal, interest, taxes and insurance, range between 30 and 38 % percent of your gross monthly income
  
• Pre-approval means that you have provided the lender with the necessary paperwork and they have approved you for an actual loan amount. It is highly recommended to gain pre-approval before the process of a looking for a new property.
  
• Pre-approval for a home loan will put you in a better negotiating position because the seller knows you are able to obtain your loan to purchase their home. Many times it can make the difference obtaining the property of your choice.
  
  • It allows you to concentrate on finding the perfect home and give you an advantage in competitive bidding if it occurs in an "over-heated" market.
    
  • Once you go to contract on your new home your loan will close faster and easier.

Financing: Selecting the best financing package available is as important as finding a home that meets your needs.

Most loans require a down payment in a range of 5% to 20% of the selling price for a principal residence.

• Specialty programs are often available with substantially lower down payments, or less monthly payments.
  
• You will need specific information to start your loan application:
  
  • Verification of income (current pay stub or w 2 forms from the past two years)
    
  • Bank and other asset statements (names, addresses, account numbers, etc.)
    
  • Loans (with whom and including monthly payments)
    
  • Other monthly debt (credit card payments, child support, etc) Be aware that multiple credit cards even with zero balances but with large credit limits will be looked at and will affect your credit rating
    
  • Amount of funds available for down payment and closing costs

     Mortgage lenders use FICO Scoring to speed up the loan application process by simplifying credit review. FICO Scoring is a formula for credit risk assessment that is believed to be highly predictive of future payment risk, the greater the risk, the higher the interest rate.

Calculation: The borrower's score is derived by weighing credit information at a snapshot in time and assessing a "point" for each piece of information. The information is taken from a credit bureau's file and scores are based on credit information only. An applicant's credit worthiness cannot be judged on race, religion, marital status, gender or nationality. The score is calculated based on assigned numerical values for certain credit characteristics, the higher the overall score, the less risk there is for the lender. High Risk Characteristics Are: Bankruptcy, charge-offs or loan defaults, Repossession, serious delinquency. Some other characteristics that determine credit score are: number and age of trade lines, current level of indebtedness, types of credit available (revolving vs. installment), amount of time credit has been in use, credit inquiries

Weight of Factors: Each characteristic is "weighted" with credit usage as a key factor. Other factors with high weights are collections, judgment, bankruptcies, late payments, current balances, too few to too many revolving accounts, finance company accounts, number of accounts opened in the past 12 months, collections and number of credit inquires made. FICO Scoring looks at credit patterns over a period of time. In other words, one late payment will not ruin your credit score, however, a history of late payments and high credit balances will have an effect on an individual's score.

     Things to Keep in Mind: New debt particularly for major expenditures has an immediate negative impact on your score. Bills need to be paid on time, all the time. Be aware that revolving debt has a higher negative impact on borrower's score than installment debt. "Shopping" for credit and opening new credit card accounts to pay off old accounts will influence scores. Check your credit reports at least once per year. If you feel there are errors contained in your credit report contact the credit bureau. Borrowers may fill out credit dispute forms and file them with the credit bureau for investigation. You may do so by contacting the appropriate credit repository. Three repositories are listed below:

               Equifax (800) 685-1111 http://www.equifax.com
               Experian (TRW) (888) 3742 http://www.experian.com
               Trans Union Corp (800) 916-8800 http://www.tuc.com