Well, first of all there?s your credit report and it?s up to you to make it look impressive for potential lenders. However, they also want information about your employment and career path. They will be very interested in your ratio of loan/credit card payments to the amount of your income. You will need to show them documentary evidence of income. These can include all kinds of earning statements such as W-2s and tax returns, and failure to produce them can result in being charged much higher interest rates. Another factor to consider may be your loan-to-value ratio known as LTV.

Your LTV is based on the percentage of the total value of your house and what you still owe on it. For example if the total value of your house is $150, 000 and your remaining debt is $100,000 that means that your LTV is 75%. This would be fine, as your equity lender will want to keep the LTV at 80% or under.

Working out the LTV on a home equity product is calculated as follows: add the present mortgage balance to the amount of equity loan that you are seeking and divide the result by the amount of current value of your property. However, it is possible to find lenders who will offer a loan based on an amount far higher than the value of the property. These are known as high LTV loans and are only offered to applicants who can afford the high monthly repayments.

What is pre-qualification?

There is no doubt that gaining pre-qualification status is a valuable first step in the process of buying your house. Being pre-qualified or pre-approved gives you the financial status you need in order to look for a mortgage. Pre-qualification status means that you already have a loan, which gives you some negotiating leverage. To achieve this status, you will have to provide your mortgage lender with all your financial details in order to reach an estimate of how much you can afford to pay on a mortgage. This service is free and doesn?t take very long and the information that you give to the lender will give them a good idea of your general creditworthiness.

So what is pre-approval?

This one is even better! Subject to receiving confirmation of all your financial details from your bank and employer, the lender will send you a letter of pre-approval. This means that your mortgage will be approved for a certain amount and within a definite period of time. This is certainly worth paying a modest fee, often refundable on closing, to cover all the costs involved in the processing of your application for pre-approval and in obtaining your credit report.

Both pre-qualification and pre-approval are subject to your financial circumstances remaining the same. You will need to contact your lender if your finances take a downward turn.

There is no doubt that becoming either pre-approved or pre-qualified gives you a distinct advantage when buying a property as sellers will be reassured that your application will be accepted. As far as the lender is concerned all the hard work has been done so a great deal of time will be saved on closing.