Getting pre-approved for a mortgage can help you understand your budget and show sellers
that you’re a serious buyer. It also helps to know how mortgage payments are calculated so you
can plan for the costs of owning a home.
What does mortgage pre-approval mean?
Mortgage pre-approval is when a lender reviews your financial information to estimate how
much you may be able to borrow to buy a home. It’s not a guarantee of a loan, but it gives you a
better idea of your price range.
To get started, contact a bank, credit union or mortgage lender. You’ll usually need to provide
documents such as:
● Recent pay stubs
● W-2 forms or tax returns
● Bank statements
● Information about your monthly debts
● Your Social Security number for a credit check
The lender will review your income, credit score, debt and savings. These details help
determine how much you may qualify to borrow and what interest rate you could receive.
Once approved, you’ll receive a pre-approval letter. This letter can help you make offers on
homes within your budget. Keep in mind that pre-approval letters often expire after 60 to 90
days, so check the expiration date with your lender.
The approval amount should not be your budget
Just because a lender approves you for a certain amount doesn’t mean you can comfortably
afford that much. Your pre-approval number shouldn’t be the starting point for your home
search. Instead, look at your take-home pay, which is the money you receive after taxes and
other deductions. A helpful guideline is to spend no more than 25-30% of your monthly take-
home pay on your mortgage payment.
This approach can help leave room in your budget for groceries, utilities, savings, transportation
and unexpected expenses. Remember to include property taxes, homeowners insurance and
any other housing costs when figuring out your monthly payment.
How to calculate your mortgage payments
Your monthly mortgage payment depends on several factors, including the loan amount,
interest rate, if you have private mortgage insurance (PMI) and the lifespan of the loan. A
common mortgage term is 30 years, although 15-year loans are also available.
For example, if you borrow $250,000 with a 30-year loan and a 6.5% interest rate, your
estimated monthly principal and interest payment would be about $1,580. You can use an
online mortgage calculator to estimate your payment. Simply enter the home price, down
payment, interest rate and loan term.
Remember that your full monthly housing cost may include more than principal and interest.
Property taxes, homeowners insurance, PMI and homeowners association (HOA) fees can add
to your monthly expenses.
Plan before you buy!
Getting pre-approved and calculating your mortgage payment are two important steps toward
buying a home. They help you understand what you can afford and avoid taking on more debt
than you can manage.
Before making an offer, compare lenders, review loan options and leave room in your budget for
unexpected expenses. A little planning now can help make the homebuying process easier and
put you on the path to owning a home.
At United Housing, Inc. our mission is to provide the Memphis community with financially
attainable homes. Interested in touring one of our available properties? Contact us at 901-272-1122.