Home Loan Self-Prequalification
Getting a home loan can be tough in the current lending market, but obtaining that home mortgage loan is possible whether you have good or bad credit. Before attempting to get a home loan, you should understand exactly how lenders would view you in terms of risk before applying for that loan. To find out how you stand with mortgage lenders, there are two things you can do as a self-prequalification. These include getting your credit score from all three major credit scoring agencies and understanding your debt-to-income ratio.
Credit Score
Credit scores are used to determine your credit risk. When you apply for credit in any form, lenders assess their risk in lending you the money by using your credit score to determine how you manage your credit. Your credit score can be anywhere in the range of 850 to 300 with the highest scores being close to perfect and the lowest being as bad as it gets. Typically, any score above a 700 is considered very good to excellent, while below 600 indicates a high credit risk.
To get your credit score and to obtain a copy of your credit report from all three reporting agencies, go to Free Credit Report and Score!
or MyFICO - Fico Scores/Reports
For more information about your credit score and how they affect your ability to obtain a home loan or any other type of loan, go to CreditManagement101.com - Credit Score
Debt-to-Income Ratio
Your debt-to-income ratio is the total amount of monthly payments toward your debt in relation to your income. Most lenders like to see a debt ratio of 40% or less with 30% being more ideal for both the borrower and lender. For some types of home loans a low debt-to-income ratio is a requirement. However, for other home loan lenders such as sub-prime lenders, the ratio can be as high as 60%. A debt-to-income ratio as high as 60% is a recipe for disaster as it puts a lot more financial strain on the borrower than lower debt-to-income ratios. In fact, there is a higher risk of foreclosure at this high level because the interest rates over the life of the loan are typically higher. While some lenders will extend a home loan to those with a high debt-to-income ratio, as a borrower 50% or above is an indication that you need to take aggressive action to decrease your debt or increase your income before applying for any loan.
Calculating your debt-to-income ratio for a home loan is relatively easy to do. Simply add all of your monthly debt payments, including the potential payment for the loan you are applying for, and divide the total by your monthly take-home income.
Use this calculator to figure out your debt-to-income ratio, Debt-to-Income Calculator
Once you have obtained your credit score and calculated your debt-to-income ratio, you should have a good idea as to where your stand with home loan lenders.
Next Article: How Much House Can You Afford?
Want to know how much home you can afford? >> Calculate Home Affordability Here <<