If you are ready to buy a house, it is important to pre-qualify for a mortgage. You do this by going to your financial institution and submitting all the paperwork they require before you make an offer on a house. You can do this while you are still house hunting. The lender will give you a letter saying you qualify for a mortgage of a certain amount, addressed either to you or to your real estate agent. A lender can easily determine the maximum mortgage that you qualify for. As we said before, your total monthly debt payments plus the mortgage payment cannot exceed 43% of your gross monthly income. If your credit score is acceptable, the lender will give you a letter testifying to the maximum mortgage you qualify for.
A credit score of 700 or above is ideal. A credit score from 600 to 700 may affect the interest rate you will be charged on the mortgage and may affect the maximum amount you can borrow. However, this usually will still allow you to get a mortgage close to the 43% maximum mortgage guideline. A credit score under 600 will be a problem in securing a mortgage but not impossible. If you have a credit score under 600, you should first try your credit union or an online mortgage broker like Rocket Mortgage or Ditech.com.
Pre-qualifying for a mortgage is an important competitive edge in winning a bid on a house, especially if several people are interested in the same house as you. The sales contract that you will sign will have a contingency clause which states that your offer is dependent on securing a mortgage. If you already have a letter from your lender saying they have pre-approved you for a mortgage, then the seller can feel comfortable that you will be able to close the deal.
It is common practice to get pre-approved for a mortgage now, so if you do not, you will be at a competitive disadvantage. This is especially true when there is a seller’s market (more demand for than supply of houses) as opposed to a buyer’s market.