You heard me right. No pre-approval no workey.

Why? You say other Realtors showed you homes without one. Well, you didn’t buy any of those did you? And how did you know how much you could afford? You don’t know, you just want to look… Well, my Buyer Buddy, I am not an Oahu Tour Guide. We don’t go out and look at homes; we go out and buy homes.

Harsh? Maybe. But why should we waste time looking at property you can’t afford to own? It will just make you depressed and make me cranky. You don’t want me cranky.

It’s best to know how much home you can afford before starting the search process. Otherwise you will be looking at designer dream homes that are way out of your budget, and those mansions make homes you CAN afford look less appealing. Then YOU will be cranky. And I don’t want you cranky either.

After gathering your financial and employment information the lender will determine how much they are willing to loan you for a home. Getting approved does not mean that you are guaranteed to get that money, and that is not an exact figure. There will be further questions as you come to getting the loan, but this is assurance that you qualify for a certain amount of dollars.

When you do find the home you want, sellers are more likely to accept lower offers from buyers that are pre-approved. This is because they know if they accept the offer from a pre-approved buyer there is a better chance the sale will go through versus an offer that still needs to find a lender.

Here are three basic things that you need to prove when speaking to a lender for pre-approval:

Your Income and Income Ratios
You need income.  You need to be able to afford the home. What is acceptable income?  That depends on the type of loan that you apply for. These Ratios determine how much you can afford to spend on a home.

1. First Ratio – The first ratio, top ratio or housing ratio.  That means out of all the gross monthly income you make, no more than a certain percentage of it can go to your housing payment.  The housing payment consists of Principle, Interest, Taxes and Insurance.  There are a lot of exceptions to how high you can go, but let’s just say that if your housing costs are 33% of your income or less, your are ok.

2. Second Ratio- The second ratio, bottom ratio or debt ratio includes the housing payment, but also adds all of the monthly debts that you have.  This would include: auto loans, credit cards, student loans, personal loans, child support, alimony, etc. if you’re paying less than 43% of your gross monthly income to all of the debts, plus your proposed housing payment.

What qualifies as income?  It’s income that has a minimum of a two-year history of being received and high assurances that it is likely to continue for at least three more years.  Cash income and  short-term income don’t count.

Your Assets
Do you have enough assets to bring the money to the table for the down payment that the type of loan asks for? USDA says that there can be no money down.  FHA, for now, has a 3.5% down payment.  Some loans require 20% down.  These assets need to be validated through bank accounts. Can you borrow the down payment?  Sometimes.  Generally if you’re borrowing a secured loan against a secured asset you can use that.  Talk with your lender about what qualifies as an asset.

Your Credit Score
620 is the bottom score (again with few exceptions) that lenders will permit.  Below a 620, then you’re probably not going to qualify for a loan.  Even at 620, lenders consider you a high risk and are going to penalize you with a more expensive loan.

Once you have spoken with a lender and gotten pre-approval you need to give them permission to release to me a letter saying how much money you can spend on your new home.

So hop in the car! Let’s get you moved into your new home!
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What,  you’d rather drive yourself? Ok, follow me!

Today we are headed for Aloha Tower Marketplace for a Mix It Up Hawaii Tweetup at  Chai’s Island Bistro.Hosted by @NctrnlBst and @Melissa808, this series visits local business to learn about who they are and what they do and introducing people around the world to the things we love here in Hawaii!

The Marketplace was developed and the Tower was extensively renovated in 1994 and now serves as a main attraction for tourists and locals alike in downtown Honolulu.

One of the fun things about our Tweetups is it’s always great to meet new twitter pals

@dseohonolulu who is one of the founders of @ nonstophonolulu and @burajiru who was visiting from the mainland and found us! Lucky guy, he’s one of us now! And a spiffy photo set from him as well!

*BWAHHAHA *