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Pre-Qualification "Know-How"
by Lance Wiliams
http://www.mortgagefit.com/
Qualification or "pre-qualification" as determined by a
lender, is the ability of the borrower to repay a mortgage
loan based on the borrower's credit history, employment
history, assets, debts and income. If any of the information
you provide turns out to be different, or if interest rates
increase, the opinion is subject to revision. Qualification
is the initial process to verify that a borrower has enough
cash and sufficient income to purchase a home. Qualification
is not an approval because it does not include a credit check.
The process of determining whether a prospective borrower
has the ability, meaning sufficient assets and income, to
repay a loan. It is subject to verification of the
information provided by the applicant. It is short of
approval because it does not take account of the credit
history of the borrower. Qualified borrowers may ultimately
be turned down because, while they have demonstrated the
capacity to repay, a poor credit history suggests that they
may be unwilling to pay.
Qualification rate:
The interest rate used in calculating the initial mortgage
payment in qualifying a borrower. The rate used in this
calculation may or may not be the initial rate on the
mortgage. On ARMs, for example, the borrower may be
qualified at the fully indexed rate rather than the initial
rate.
Qualification ratios:
Requirements stipulated by the lender that the ratio of
housing expense to borrower income, and housing expense plus
other debt service to borrower income, cannot exceed
specified maximums, e.g., 28% and 35%. These may reflect the
maximums specified by Fannie Mae and Freddie Mac; they may
also vary with the loan-value ratio and other factors.
Qualification is always relative to property value. A
borrower who is well qualified to purchase a $200,000 house
may not qualify to buy a $400,000 house.
The lender's commitment under a pre-approval is expressed in
terms of a monthly mortgage payment. Since the interest rate
is not known the lenders are reluctant to commit to a
specific loan amount for fear that a rate increase would
increase the monthly mortgage payment. If this were to
happen, the loan amount corresponding to the approved
monthly payment would drop, and the applicant would either
have to increase the down payment or buy a less costly
house. This is why a pre-approval has limited value.
If you have any other queries related to mortgage, feel free
to visit this site http://www.mortgagefit.com/
Lance Wiliams is an accomplished contributing writer
presently working in association with
http://www.mortgagefit.com/.
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