Pre-Qualification Provides You with a Base Line

Pre-qualification is not a guarantee of a loan, but rather a statement of opinion from American Home Funding that your initial financial and credit information have been reviewed and you appear to qualify for specified loan amount. The advantage of pre-qualification is that it gives you a good idea of how much financing you might qualify for under different loan programs and interest rates before you find the right home or decide you are ready to refinance. It can also help you avoid falling in love with a home, only to find out you can’t qualify to purchase it. At American Home Funding there is no cost to pre-qualify other than a credit report fee.

Prequalification looks at two key factors: Your ability to repay a loan, and your willingness to repay the loan. Ability is based on your current employment and income. Willingness is based on part on your reason for purchasing the home – as a residence, a investment, rental property or other – and your past credit or rental payment history. Ideally, we would like you to have been employed at the same place for at least two years and be in the same line of work for a while.

You will need to provide the following information: gross monthly income and total monthly payments (car payments, minimum monthly payments on credit cards, child support payments and all payments you have to make every month). Your debts will be compared to your income to arrive at a total debt-to-income ratio. For the best interest rate, your percentage should be under 36. The lower the number, the better.

Your credit report will include a FICO (Fair, Isaac and Co.) score, which is the credit scoring system most widely used by lenders. A FICO score of 680 or better is considered "A+" (excellent), and with good ratios and other positive factors should get you the best interest rates available.
How much mortgage you can afford is estimated through two essential ratios: housing ratio and debt ratio. Your housing ratio is determined by your total monthly mortgage payment divided by your total monthly income. Debt ratio is determined by the sum of your total monthly mortgage payment and other fixed monthly debt payments divided by your total monthly income.

A maximum housing ratio of 28% and a maximum debt ratio of 36% (28/36) used to be national guidelines. However, today, you can get by with much higher percentages, if you can show that you can make the payment.
Based on your prequalification, American Home Funding will find a loan program which is right for you, and get you prequalified for the most money, and the highest ratios.