Generally, you should let a lender pre-qualify you before you buy a home. But you can basically do it yourself so you can determine the price range that you should shop for a home in. You can get your credit report yourself too, but the lender will know best if you will have any credit issues that need addressing before buying a home.
Your Gross Income. When calculating your gross income, which is your pre-tax income, you can use all your income that you receive on a regular basis. This could include:
- Gross pay (pre-tax and other deductions)
- Overtime, part-time, seasonal, commissions
- Bonuses, tips
- Dividends, interest earnings
- Business or investment earnings
- Pension, Social Security benefits
- Veterans Administration benefits
- Unemployment compensation
- Public assistance
- Alimony, child support, or separate maintenance income
Your Debt Payments. Determining your debt is also essential in figuring how large a mortgage you can obtain. Lenders will be interested in your long-term debt, which is any debt that will take 10 months to pay off. Long-term debts typically include:
- Installment loan payments with 10 or more monthly payments remaining (car loan, furniture, appliances, etc.)
- Average monthly credit card payments
- Student Loans
- Medical/health care payment
- Alimony/child support payment
If your monthly debt payments are excessive for the level of income you have, it may reduce the amount you can get for a mortgage loan so you can buy a home. For every $50 of excess debt you have, you can expect about a $5,000 reduction in the amount of mortgage loan you qualify for. If you have excessive debt, think about paying off some your debt in preparation for buying a home. You may qualify for a larger mortgage, which may in turn allow you to afford a bigger home with your income.
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