Due to low inflation in recent years, mortgage rates are seeing a downward trend. According to predictions by Fannie Mae, the National Association of Homebuilders, and the National Association of Realtors, mortgage rates are projected to hit around 3% this year, an estimated 2% decrease since 2018.
With these projected rates and knowing your mortgage budget, you may have a good idea of what you can afford. However, the decision to loan is ultimately up to the lender. To get ahead of the game and improve your chances of being accepted, you’ll want to get prequalified going in.
What is prequalification?
Prequalification helps lenders determine whether you can afford and reliably pay towards a mortgage loan. Prequalification is free and requires some personal and financial information on your part before a credit check is run.
Taking this information into account, the lender will provide an estimate of how much you can borrow and what shape your finances are in to take out a mortgage loan. Do keep in mind that getting prequalified is NOT the same as being approved for a loan.
How does credit impact prequalification?
Of course, good credit will improve your chances of getting prequalified. A credit score of at least 620 will improve your chances of prequalification and a credit score of about 740 or above will improve those chances even further.
However, do keep in mind that there are still other factors at play such as outstanding debts and any other information that can be gleaned from a full credit report.
Tips for Prequalification
Find your credit score – To see where you currently stand, you may request a free credit report online. You can do this at AnnualCreditReport.com and receive a free credit report every week through April 2021.
Pay outstanding debts – Since debts may impact your ability to get qualified, make a point to pay off any debts you are able to prior to applying.
Set aside reserves – Many banks will require about 2 months or more of housing loans with the addition of PITI (Principal, Interest, Taxes, and Insurance) in liquid reserves. Settings aside reserves is especially important if you provide a small down payment or your credit score is below 660.
Be transparent – A good rule of thumb is to disclose where reserves and down payments are coming from. In addition, having any personal and financial information that the lender may ask for ready will make discussing your situation with them smoother.
Check with multiple lenders – There are a multitude of local and online lenders, so be sure to scope them out to find the right financial partner going forward. Your diligence could save you money in the long run!
I hope that these tips and overview of mortgage prequalification help you on your homebuying journey! As always, I’m here for you if you have any other questions or need further advice. Feel free to contact me at 480-355-8645 and we can discuss ways to make prequalification easy.