Mortgage Calculator
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Getting Pre-approved: What You Need
As a prospective home buyer, securing pre-approval for a mortgage loan is an essential step in the home buying process. Pre-approval not only shows listing agents and sellers that you're a serious buyer, but also tells you how much you can afford comfortably. Below is a summary of the key items you need to provide to a lender to initiate your pre-approval process.
Proof of Income
Be ready to present your recent pay stubs, tax returns for the past two years, and W-2 or 1099 forms. If you're self-employed, lenders might require additional proof of your business's income stability.
Proof of Assets
You will need to show that you have the means to make a down payment and cover closing costs. Bank statements and investment account statements will suffice for this.
Good Credit Score
Most lenders prefer borrowers with a credit score of 620 or higher for conventional loans, while a score of 580 or higher is typically required for FHA loans. Know your credit score ahead of time, and if it's low, consider steps to improve it before applying.
Employment Verification
Lenders want to see a stable employment history. Be prepared to provide contact details of your current employer, and possibly past employers if you've changed jobs recently. If you're self-employed, lenders may require details of your business and clients.
Identification
Valid identification, like a driver’s license or passport, is a must. You will also need your Social Security number for a credit check.
Debt-to-Income Ratio (DTI)
Your DTI ratio shows a lender how much of your monthly income goes towards paying debts. Most lenders prefer a DTI of 36% or less, including the prospective mortgage payment.
Residential History
Lenders often require information about where you've lived for the past two years. If you've been renting, expect to provide contact information for your landlords.
Remember, every lender is different, so they may have unique requirements. It's essential to ask your lender what you'll need to provide for pre-approval. Having all these documents ready can significantly expedite the process, getting you one step closer to owning your dream home!
Affordability Help
Annual Income
This is the combined annual income for you and your co-borrower. Include all income before taxes, including base salary, commissions, bonuses, overtime, tips, rental income, investment income, alimony, child support, etc.
Down Payment
The typical rule of thumb is to pay 20 percent of the home's price as your down payment, although some mortgage loans require as little as 3.5 percent down. Your down payment reduces the total amount of your mortgage loan, so the more money you put down, the lower your payments will be - or the more expensive a house you can buy.
Other Monthly Debts
Include all monthly debt payments for of you and your co-borrower, including: minimum monthly required credit card payments, car payments, student loan payments, alimony/child support payments, any house payments (rent or mortgage) other than the new mortgage you are seeking, rental property maintenance, and other personal loans with periodic payments.
Do NOT include: credit card balances you pay off in full each month, existing house payments (rent or mortgage) that will become obsolete as a result of the new mortgage you're seeking, or the new mortgage you're seeking.
Loan Term
Your loan program can affect your interest rate and monthly payments. Choose from 30-year fixed, 15-year fixed, and more in the calculator.
Loan Type
There are several types of mortgage loans, but the most commonly used are fixed-rate and adjustable-rate loans. Fixed-rate loans have the same interest rate for the entire duration of the loan. That means your monthly payment will be the same, even for long-term loans, such as 30-year fixed-rate mortgages. Two benefits to this loan type are stability, and being able to calculate your total interest up front. Adjustable-rate mortgages (ARMs) have interest rates that can change over time. Typically they start out at a lower interest rate than a fixed-rate loan, and hold that rate for a set number of years, before changing interest rates from year to year. For example, if you have a 5/1 ARM, you will have the same interest rate for the first 5 years, and then your interest rate will change from year to year. The main benefit of an adjustable-rate loan is starting off with a lower interest rate.
Interest Rate
This field is pre-filled with the current average mortgage rate. Your actual rate will vary based on factors like credit score and down payment.
Property Tax
The mortgage payment calculator includes estimated property taxes based on the home's value. You can edit this in the advanced options.
Home Insurance
Home insurance or homeowners insurance is typically required by lenders, depending on the loan program. You can edit this number in the mortgage calculator advanced options.
HOA Fees
A homeowners association fee (HOA fee) is an amount of money that must be paid monthly by owners of certain types of residential properties, and HOAs collect these fees to assist with maintaining and improving properties in the association.
Debt-to-Income (DTI)
Your DTI is expressed as a percentage and is your total "minimum" monthly debt divided by your gross monthly income. The conventional limit for DTI is 36% of your monthly income, but this could be as high as 41% for FHA loans. A DTI of 20% or below is considered excellent.
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