What Qualifies for a Mortgage?
Homebuyers can qualify for mortgage financing by meeting certain requirements such as credit history, employment qualifications, down payment amount and income. No matter if you’re applying for conventional loan, VA or FHA loan, understanding your eligibility allows for informed decisions when searching for your dream home.
What Is the Mortgage Process?
The loan application process starts with a lender reviewing all information you’ve provided them. This may include your credit report, pay stubs and bank statements as well as other documents supporting your loan application.
A lending specialist will submit the application and all supporting documentation to a mortgage underwriter who will assess your application for conformance to loan program guidelines. After reviewing your file, they will make a determination whether to approve your mortgage application or not.
How to Qualify For a Loan
In order to be approved for a mortgage, you need an excellent credit score and sufficient income. In addition, other factors can impact your eligibility such as existing debts, insufficient down payment funds and credit issues.
Improve Your Credit: Your credit score determines how much money lenders will loan you and the interest rate they charge for it. A lower score can prevent you from getting the best rates or terms available, but it is still possible to boost your score by paying down consumer debt and using debit cards instead of credit cards.
Decrease Your Debt: Too much debt can eat away at your purchasing power, potentially jeopardizing your ability to secure a home loan. Paying off credit card minimums and student loans will help boost your purchasing power and raise the odds that you qualify for a mortgage.
Calculate Your Debt-to-Income Ratio (DTI): DTI is the amount of monthly payments (including housing costs, credit card minimums and car loans) divided by your gross monthly income, expressed as a percentage. Mortgage type and lender guidelines differ, but typically conventional loans allow for up to 28% debt-to-income ratio.
Your Income and Assets: Lenders assess your income as well as any properties or other possessions you’re pledging as collateral against a mortgage. They also consider how much cash you have on hand, which is usually determined by reviewing recent statements for checking and savings accounts, money market accounts or investment accounts.
Buying a home is an enormous financial commitment, and your lender wants to guarantee you have enough cash on hand for it all to work out. They’ll review your credit, debts and assets to confirm you can afford the mortgage payment as well as any extra expenses like property taxes or homeowners insurance.
When looking to purchase a home, it’s wise to get preapproved for a mortgage before starting your search. Doing this will give you an accurate idea of the house price range within which you can comfortably afford and help focus your search on properties within that price range.