Prequalification

When you need prequalification, try to get a recommendation for a lender or mortgage broker from a friend, colleague or family member or your real estate agent. The lender or mortgage broker will request the following information: your gross monthly income and total monthly debts (car payments, minimum payments for credit cards, spousal or child support payments and any other payments you must pay each month).

Your lender will add all your debts together and compare that number to your gross monthly income to get at your total debt-to-income ratio (DTI). Your percentage should be under 36 to qualify for the best interest rate. The lower the number, the better (if over 50 andudner 60; you may want to choose an FHA loan).

The next thing your lender will do is access your credit report with your signed authorization. Your credit report will include a FICO (Fair, Isaac and Co.) score, which is the credit scoring system used most often by lenders, banks and insurance companies. A credit score is a formula that calculates the risk of lending money to you based on several factors which include; lenght of time at your present job, your occupation, length of time at your present address, the ratio of available credit to your credit balance, the number of recent inquiries into your credit, your age, the number of credit accounts you have, length of time you've had a credit account, and any derogatory items such as slow payment history, collections, bankruptcy, foreclosures. In general, a FICO score of 720 or higher is considered "A+" (excellent), and having good debt to income ratios should get you the best interest rates that can be offered.

Request from your lender or mortgage company to prepare a prequalification letter for you. The letter should state that after reviewing your initial financial and credit information you are qualified to purchase property "x", although the letter may also use a dislaimer such as there is no guarantee of a loan.