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Home Loans and What you Need to Know to Pre-Qualify For a Mortgage - Income to Debt Ratios and Credit Reports

July 19th 2006

Home Loans and What you Need to Know to Pre-Qualify For a Mortgage - Income to Debt Ratios and Credit Reports


Buying a home can be very stressful, but there are some things you should do before you start looking.  Having a regular pay check makes it easier to qualify, but you will still need to check your credit report first.  You may be surprised how many extra addresses and mistakes can be on your credit record. 

Credit reporting agencies will not remove anything until they have evidence that what they have is inaccurate.  Usually the credit report will have a dispute form attached with it.  If you see something that does not belong, fill in the forms and send them back. 


They will respond either yah or nay to your correction request.  Even if there is a legitimate issue on your credit report, try to dispute it anyway.  Sometimes creditors are slow to answer the dispute, and if they donít within the allotted time, and you could save thousands in interest.  Do this before you get pre-qualified.

Many loan brokers and some real estate brokers can handle the pre-qualification process.  They will check your credit, determine your income and likely ask how much you have towards the down payment. 

After you are pre-qualified, then you can begin shopping for your house.  But remember that just because you are pre-qualified does not mean you will get a loan for a specific house, even if you are qualified for that dollar amount.  You will likely need an appraisal, and the bank will assess your down payment with the value the house. 


Credit card debt will count against you and is a factor used to compute your debt to income ratio.  There are many free debt-to-income ratio calculators on the internet.  If your ratio is 37%-42% it is considered ok, but you should try to improve either your income or your debt.  If you score 43%-49% you are not in good financial shape.

Banks are looking for people that are unlikely to default on the loan.  Large down payments make you a better risk.  Good credit scores can improve your interest rate.  It is always a good idea to check your credit reports and determine your debt to income ratio before you begin a pre-qualification process.

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Dan Wilson
Best Syndication

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Important:  The material on Best Syndication is for informational purposes only and is not meant to be advice. You should always seek professional advice before making financial decisions. 
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