Prequalifying for a Mortgage

If you have prequalified for a mortgage, then you may not have to go through, too lengthy, a loan application process.

Prequalifying for a Home Loan

Everyone is looking to buy a home of their dreams. Somewhere they can get married and raise their children and live, as they say, happily ever after. And clearly not everyone has the financial muscle to pull off a home purchase without external financing. Mortgage loans have come to be a dominant method of financing the purchase of homes.

And while some people may struggle to make the ends meet (as regards the credit score) and avail a loan which will help them buy that house, others meet the necessary standards set by the mortgage companies and 'prequalify' for a loan. Prequalify, like the name suggests, means that they already have qualified the norms set by lenders for the ideal person to give a loan to. Of course, this ideal person would be someone who is trustworthy and financially stable enough to be able to meet the mortgage payments on time and won't default on them. So, while these are pretty commonsense prequalification norms.

The Federal Housing Administration lay down the norms for prequalifying for a mortgage loan. These are the parameters which the FHA consider essential for anyone to prequalify for mortgage.

• Firstly, you need to have a steady employment history. You need to show that you don't change your job too much and are working with your current employer for over 2 years. This point is important from the point of view of the lender as if the person to be given the loan changes jobs too many times then there are chances that sooner or later down the line, that person may face financial difficulties or reduced salary, which may or may not see him making the mortgage payments on time.
• Consistent or increasing income for the past two years. If there is one criterion which determines not only the prequalification, but also the amount of loan a person prequalifies for. Understandably, the more the income, the more is the loan which he qualifies for. This is an important criteria from the point of view of the lender as they understand the financial health of the person taking the loan and just how much he will be able to pay back.
• The credit report should have a good standing with less than 2, thirty day, late payments in the past two years. Credit reports are a record of the past external financing you took and serve as proof of your creditability to the lender. So if you haven't defaulted on your credit card bills and all the previous loans which you had taken, have been paid off on time, then chances are your credit score will be good enough to convince the FHA for you prequalifying for a mortgage.
• If you went through bankruptcy, it should hopefully be over two years ago, after which you have shown a stellar performance on your credit. That is to say, irrespective of bankruptcy, you can prequalify for a mortgage loan if the bankruptcy was over 2 years ago and your credit rating has really improved over the time.
• People who have faced foreclosure too, can prequalify for a mortgage. Only thing is that the foreclosure should have been more than three years ago and since then you have taken efforts to improve your credit score and have maintained it at an acceptable level ever since.
• And the last criterion here, governing prequalifying for a mortgage, is the amount of money to be given as a loan. You can only prequalify for a loan whose mortgage payments are less than or equal to 30% of your gross monthly income. So if you want a bigger loan, then you take the prequalified amount and then arrange the rest of the terms with your lender.

As you can see, if you are able to clear all the requirements set by the FHA, you will have no trouble availing a home loan at all.