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Prequalification considerations for first time home buyers

As you prepare to begin the search for your first home, it can be helpful to get prequalified before shopping for a house. Find out how.

As a newly married couple, you may be looking forward to the excitement of shopping for your new home together. Before you get swept away dreaming of your perfect home, the reality is that you must be able to qualify for a home mortgage loan - preferably getting that all-important preapproval before you go shopping.

Why? Because getting preapproved for a home loan allows you to shop with confidence in your particular price range. And, if a seller knows you've been granted a preapproval, it may even increase your chances of getting an offer accepted in a competitive market.

While lenders use a variety of different criteria to determine consumer eligibility for a home loan, there are some general guidelines that most of them follow. We've put together a short list of items that lenders may look at when granting a preapproval to new buyers:

Good credit score

A good credit score is a sign of a responsible borrower because it measures how well you've managed debt in the past. When you apply for credit stating your joint income, lenders will usually look at both of your credit scores when evaluating your loan application. If you have a poor score and your spouse has a good one, you don't get the option of using your spouse's when applying for credit. Worse yet, your low score could mean that as a couple, you may not get the interest rate (or loan) that you want.

Steady employment

In order to get a loan, you'll need to prove your source of income. While this may seem obvious, be aware that employment and income records will be checked to ensure that your joint household income is high enough to cover your monthly payment.

A high PITI

PITI stands for principal, interest, taxes, and insurance. If it's too high, lenders fear it may be difficult for you to make ends meet and pay your mortgage. Your total monthly mortgage payment will include PITI and will likely need to be a percentage of your gross monthly income deemed reasonable by your lender. If your monthly income isn't high enough for the mortgage you want, you may need to consider making a larger down payment.

A healthy debt-to-income ratio

Lenders will look heavily at your budget - specifically at your debt-to-income ratio, which is the percentage of your monthly income that is used to pay for credit card bills, student loans, child-custody or alimony payments, and your total PITI. In general, having a debt-to-income ratio that is high may send a red flag to lenders that you could have trouble keeping up with your monthly mortgage payments.1 If your debt-to-income ratio isn't where it should be, you may be able to find a lender who is willing to work with you.

Budgeting for a new home as a married couple can be a challenge. However, by having a better understanding of what lenders are looking at in terms of prequalification, you'll be able to enjoy the process with less stress and still find the home of your dreams!





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