One of the first steps in homeownership is understanding how much home you can afford. A prequalification is an informal evaluation, usually done by a lender, of your creditworthiness. Not sure if you are financially ready to invest in Hawaii real estate? Here are helpful stats you need to know:
- What is your annual income?
- How many years will the term of the loan be?
- What is the interest rate?
- How much money do you want to borrow?
- What is your credit score?
- Excellent (740+)
- Good (680-739)
- Average (620-679)
- Below average
- Have you been employed full time for the past two years?
- Are you saving for a down payment?
- Do you have past credit issues such as bankruptcy in the last four years?
- What are your monthly recurring debt payments?
There may be more information your lender will ask but knowing these numbers will give the bank a good idea where you stand financially.
What you should know?
- Debt-to-income ratio or DTI. This is a formula that most lenders use to determine your prequalification. Back-end DTI is calculated by figuring all your debt divided by your gross monthly income. You want this number to be no greater that 36% for a conventional mortgage. Government-backed loan programs may allow a higher percentage.
- The best way to qualify for a higher loan amount is to increase your income. This will improve your
DTI. Be sure to use your new income to pay down your debt. This will also give you a better DTI.