A small fee may apply, but, if you've been denied credit recently, federal law states that the lender tell you which company supplied the information. You have a right to a free copy of your report from that company so long as you request it within 30 days of the credit denial. Pre-qualification, based on numbers you supply to a lender, is an indication of the range of what you can afford. Getting pre-qualified is neither a commitment to loan you money, nor is it an obligation by you to borrow from a particular lender. You can always shop for a better lender.
Lenders typically use one of two guidelines when evaluating a loan request.
Most lenders will limit the loan amount to a percentage of your gross monthly income or to a multiple of your annual household income. Some lenders use an alternate ratio that allows 36 percent of total monthly income for housing expenses and other long-term debts, such as car loans, credit card payments and obligations for child support. Another guideline, based on gross annual household income, assumes most borrowers can afford up to 2.5 times their gross annual income. Many lenders provide work sheets and charts to help you calculate your borrowing power, along tables so you can compare payments at different rates and for different loan periods. Your borrowing power can be increased with favorable interest rates and terms.