Pre-Qualification Know-How"

Qualification or "pre-qualification" as determined by a lender, is the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income.

(PRWEB) December 17, 2004 -- This is a mortgage information dissemination company. In our day-to-day business, there are many misunderstandings related to mortgage. This article about pre-qualification along with the associated resources is nothing but the company effort, to help you in getting a clear picture of it.

Qualification or "pre-qualification" as determined by a lender, is the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income. If any of the information you provide turns out to be different, or if interest rates increase, the opinion is subject to revision. Qualification is the initial process to verify that a borrower has enough cash and sufficient income to purchase a home. Qualification is not an approval because it does not include a credit check.

The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan. It is subject to verification of the information provided by the applicant. It is short of approval because it does not take account of the credit history of the borrower. Qualified borrowers may ultimately be turned down because, while they have demonstrated the capacity to repay, a poor credit history suggests that they may be unwilling to pay.

Qualification rate:

The interest rate used in calculating the initial mortgage payment in qualifying a borrower. The rate used in this calculation may or may not be the initial rate on the mortgage. On ARMs, for example, the borrower may be qualified at the fully indexed rate rather than the initial rate.

Qualification ratios:

Requirements stipulated by the lender that the ratio of housing expense to borrower income, and housing expense plus other debt service to borrower income, cannot exceed specified maximums, e.g., 28% and 35%. These may reflect the maximums specified by Fannie Mae and Freddie Mac; they may also vary with the loan-value ratio and other factors.

Qualification is always relative to property value. A borrower who is well qualified to purchase a $200,000 house may not qualify to buy a $400,000 house.

The lender's commitment under a pre-approval is expressed in terms of a monthly mortgage payment. Since the interest rate is not known the lenders are reluctant to commit to a specific loan amount for fear that a rate increase would increase the monthly mortgage payment. If this were to happen, the loan amount corresponding to the approved monthly payment would drop, and the applicant would either have to increase the down payment or buy a less costly house. This is why a pre-approval has limited value.

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