When my wife and I bought our first home in 1994, our PITI (Principle, Interest, Taxes, and Insurance) was about 30% of our gross monthly income, well within the lending Debt-to-Income ratio. However, it’s important to understand not just what the maximum is you can afford and qualify for, but also making sure you enjoy your home and are not ‘house poor’. From my experience, a 25% PITI to gross monthly income is a good guideline to provide a comfortable mortgage payment with extra money each month for an average lifestyle. Either way, it’s important to understand your finances and maximum borrowing leverage available to you.
Especially in today’s Seller’s Market, getting pre-approved gives the buyer leverage over other buyers that do not have a pre-approved mortgage letter. The first step in the loan process is to make contact with a loan consultant and begin the application process. At this time the loan consultant will begin gathering all pertinent loan application information from you such as:
- Last 2 Years of Federal Tax Returns
- Last 2 months of bank statements and investments (mutual funds, brokerage)
- Last 30 days of paystubs
- Copy of Driver’s License for each person that will be on the loan
The consultant will let you know exactly what documents you will need to provide and address important questions during your initial meeting so they can design the proper loan scenario for you.
Loan consultants will guide you through the entire loan process at this time. Loan consultants are qualified to answer any questions you may have about loan process, so don’t hesitate to ask. After your initial meeting with the loan consultant, the following steps are taken to complete the application process:
- A credit report is pulled.
- An application is signed.
- Disclosures are signed.
- Explanation letters are written to explain specific situations that affect your financial ability to repay a mortgage loan.
- Supporting documentation is presented by you to the mortgage company to validate the information provided for the loan application
- An underwriting pre-approval is performed by an automated underwriting service or a manual underwriter.
- A commitment fee, application fee, or good faith deposit is paid by the homebuyer to the mortgage company.
- A pre-approval letter with conditions is presented to you. House hunting begins