Pre-qualifying Before Buying Can Help Prevent Home Foreclosures

By Sheryl Landrum
Mortgage Credit Problems Columnist

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Recently, many contributing causes created a perfect storm of home mortgage foreclosure. Enthusiastic and uninformed borrowers overreached, overzealous lending professionals suspended judgment, and regulators didn't keep up with the proliferation of overly creative and sometimes downright predatory lenders.

Lenders allowing home loans to close that were unaffordable to borrowers is one reason the foreclosure rate is soaring. To protect yourself and to help stop this trend in home foreclosures, pre-qualify for a home loan before you buy. If this sounds like the right idea to you, read on to find out how easy the process is.

First of all, find a trustworthy loan officer or lender to help you. He or she will want to ensure that the home loan you get will benefit you and not put you at risk of a home foreclosure. Your lender will ask you questions regarding your monthly income, and will need proof of same by requiring two month's consecutive paychecks and possibly two year's worth of W-2s. Your lender will also run your credit report to see what outstanding debt you have and to check your credit scores. Outstanding debt is a key factor in stopping home foreclosures; if your monthly debt service and your monthly house payment together exceed 45% of your gross monthly income, you are at a higher risk of being unable to make mortgage payments--excess debt is a leading cause of mortgage foreclosure.

Secondly, make sure the mortgage payment amount includes ALL the monthly expenses of owning a home. Once you have the monthly principle and interest calculated, don't forget to add the monthly cost for property taxes including special assessments, insurance, and HOA fees if applicable. Borrowers who waive impounds for these costs may add to their risk of home foreclosure if they do not set aside funds to pay them when the bills become due.

When you take the time to pre-qualify for a mortgage, you determine what you can afford. Buying a home that is unrealistic and unaffordable can lead to a decision you may regret and the risk of mortgage foreclosure as well.

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