Get Prequalified to Buy A Home in Arizona

Most first time home buyers in Arizona don’t have the chance to pay cash to buy a home. So, like most people, once you have made the decision to buy, you need to get prequalifed to buy a home in Arizona.

What Is a Prequalification?

To get prequalified to buy a home in Arizona means that you get an estimate of what you can afford to buy. It also means that you find out if you meet the requirements to be eligible for a home loan. There are many different loan programs available for Arizona first time home buyers. Each program has different rules, down payment requirements, interest rates and advantages.

How Do I Get Prequalified?

You’ll find that there are useful online tools that can tell you what the current average mortgage rates are, help you calculate an estimated mortgage payment or complete a digital mortgage application.

Many Arizona first time home buyers want the peace of mind of knowing how much they qualify to buy so you can search for homes with confidence. The best way to be confident that you can qualify to buy is talk to a local mortgage professional.

A local lender is familiar with Arizona’s first time home buyer programs and most likely approved to offer Arizona down payment assistance programs. Another benefit of speaking with a local lender is that he or she is familiar with your local housing market. They can give better advice because they know how much it costs to buy a home in the area where you are looking. Local Arizona lenders are familiar with local property taxes rates and HOA fees. Also, they know local rules and regulations that impact how much it costs to buy and maintain a home in Arizona.

The conversation with your lender should be encouraging and usually only takes minutes. Your lender will talk to you about your home buying goals and chat about your concerns to help determine the best loan programs to meet your needs. Your lender will ask you basic qualifying questions related to your personal financial situation.

By the end of the conversation, a local expert mortgage professional should be able to tell you the following:

• The maximum purchase price you qualify to buy.
• What loan programs are available and which is best for your personal circumstances.
• What property type (ex. Traditional house, condo, mobile home) you are eligible to buy.
• What the current interest rate is for the program that is best for you.
• What will be your estimated monthly payment.
• How much money you will need to pay upfront in down payment and closing costs.
• And if your current credit score meets the qualifying criteria.

What Financial Information Is Involved in the Prequalification Discussion?

As mentioned, to get prequalified it is best to have a discussion with your Arizona-based lender about your financial situation. So, what is the standard information that is part of the discussion?

How Much Do You Make?

To be able to determine what the maximum amount you can buy, your lender needs to know the monthly income of all people that will be on the loan. Your lender will ask a few questions to determine if your income is stable so they can determine how they must calculate your qualifying monthly income amount. Generally, a lender will want to make sure you’ve been earning steady income for at least two years. For example, if you earn your income from being self-employed, your lender will probably ask you if you’ve filed tax returns for more than two years. Another example is if your income is not salary or hourly wages and it varies (ex. overtime or commissions) your lender may ask to review your paystubs to determine the average of your variable income.

Even if it isn’t part of the initial prequalification process, you should know that the lender must be able to verify your income through supporting documentation before your final loan approval in order to prove that you have the ability to repay the loan.

What Are Your Monthly Debt Obligations?

Your lender is going to ask you questions about your debts to be able to calculate your debt-to-income ratio. Your debt-to-income calculation is the key factor to knowing how much home you qualify to buy.

So what debts are included in your prequalification? The typical debts that are included are those that show up on your credit report. These are installment loans (ex. car loans and student loans) and revolving debt (ex. credit cards). You will also need to include any obligations that you have from alimony, child support or government obligations (ex. payment plans on past-due taxes).

What obligations are not included in your prequalification? You almost never need to worry about obligations associated with standard living expenses such as your utility bills, mobile phone, car insurance.

What Is a Debt-To-Income Ratio?

A debt-to-income ratio is a comparison of your monthly debt payments to your gross verifiable monthly income. As mentioned before, your debt-to-income calculation is the key factor to knowing how much home you qualify to buy. Each loan program has different rules related to what debt-to-income amount they will accept.

When you are getting prequalified to buy a home in Arizona, there are two debt-to-income calculations that your lender must take into consideration.

The first is called the front-end ratio, also known as a housing ratio, and it is the comparison of your potential monthly mortgage payment to your gross verifiable monthly income. The monthly mortgage payment needs to include the principal and interest payment, monthly tax payments, and monthly homeowners insurance payment. In addition, if applicable, the payment calculation will need to include monthly payments for mortgage insurance and homeowner association fees.

The second is called the back-end ratio. It is the comparison to your total monthly debt payments to your gross verifiable monthly income. So, this calculation will include the potential monthly mortgage payment and all of your monthly debt obligations.

How Much Money Do You Have Available for Down Payment and Closing Costs?

Your lender will ask you questions about your savings to see if you have enough money for a down payment and closing costs. The total amount that you will need also depends on what loan program you choose and other factors.

If you don’t have the money available for your down payment and closing costs, your lender should be able to advise you on down payment assistance programs in Arizona.

How Is Your Credit?

All mortgage programs have minimum credit score requirements that a borrower must meet in order to be approved. Your lender will ask if they can pull a copy of your credit report to see what your scores are and review the details. When your lender obtains a copy of your credit report, it will come from three different credit bureaus. The middle score is used to qualify for a loan. In addition, your lender will ask you questions about your credit to see if there is anything might keep you from qualifying for a mortgage such as a recent bankruptcy or foreclosure.

Although it is not required for a verbal prequalification, it is typically a good idea to allow your lender to obtain and review your credit report so that you can be sure that your prequalification is valid. Plus, there could be errors on your credit report that could impact your score. You should review your credit report together to find and correct any errors.

Recently we were able to help one of our customers find a collection account that was not reporting correctly. His score increased immediately from 697 to 772 when the collection account was removed.

Congratulations! You’re Prequalified to Buy a Home in Arizona. What’s Next?

Now that you have a good idea of how much you qualify to buy, you probably want to go out and look for homes in your price range. If you find a house that you’re interested in buying, you will need a signed Prequalification form in order to submit an offer. In Arizona, it is common practice for lenders to issue the Pre-Qualification Form that is issued by the Arizona Association of Realtors.

Your lender must show that they have reviewed your financial documentation that supports the information that you provided in order to be prequalified. The must common documents that are requested from you in order to issue a signed pre-approval letter are as follows:

• Pay stubs with year-to-date amounts for the last 30 days.
• W-2 forms for all employment for the previous 2 years.
• Complete copies of previous 2 years personal tax returns including all schedules.
• Copies of the past 2 bank months statements (all pages).