Home Loan Qualifications

If you’re interested in receiving a home loan, the first thing you should do is to see if you qualify or what you need in order to qualify. When considering your eligibility, there are multiple factors that banks take into consideration. You should know what they are and do your best to strengthen these factors as that will allow you to get the best loan option possible. The following are some of the qualifications that private lenders look at to determine your loan worthiness:

Credit Score

Credit scores are created using your bill payment history and outstanding debts, meaning how much money you currently owe. They take into consideration the timeliness of your payments, the length of your credit history, and how many accounts you’ve had. Credit scores are like summaries of all your credit and payment history that are condensed into a three-number score. Banks use this score as a way to decide if you are trustworthy with borrowed money.

Higher credit scores mean that you have a good history of making payments on time and show banks that they can trust you. Good credit scores that will qualify you for most loans are at a score of 640 and above. The best way to improve credit is by always paying bills on time, starting to use credit as soon as possible, and showing that you can handle a variety of accounts at once. Keeping your revolving credit balance to a minimum is a good idea before you head to the bank to be qualified. Brian can refer you to a trusted credit repair specialist partner to help you bring your credit back up to snuff.

Income

Showing a steady source of income goes a long way in showing that you are capable of affording your monthly mortgage payments. Most loans don’t have direct income requirements, but income is taken into consideration when deciding if you can repay a loan. Make sure you are aware of how much you can afford before choosing a home and loan plan.

Debt-to-Income Ratio

Debt-to-income ratio (DTI) shows how much your monthly expenses compare to your monthly income. It is calculated by dividing your monthly debt by monthly gross income. This means that as your monthly debts grow, your DTI will also grow, and vice versa. When taking out a loan, it’s safest to keep your DTI at a minimum, but each loan has its own limits on what it considers an acceptably high DTI. FHA loans, for example, Have the highest DTI tolerance of up to 57%. Debt to income ratios are the main way lenders determine if you can afford a monthly mortgage payment.

Employment History

Private lenders like to see that you have stability in your income and the ability to continue making mortgage payments for the foreseeable future. Therefore, they look at your employment history to see if you have a solid history of employment. Lenders like to see that you have had at least two years of employment with minimal gaps between jobs. Being at the same job for two years may look even better because it shows that you will likely not be unemployed anytime soon. It’s best to have two years of employment history, but getting a loan with at least 6 months is possible too, depending on the circumstances, and if the other loan qualifications are strong enough or if you were a full time student within the last two years.

Preapproval

When you’re ready to start actually looking at houses, it may benefit you to get preapproved. This is when a lender looks at your documents and loan qualification factors to determine how much money you may be able to borrow and what your interest rate may be. It’s beneficial because it shows lenders and realtors that you are serious and they have already verified your information.

As a bonus, you will know what price range to shop for houses in. Preapproval letters are helpful, and even though the loan estimate and rates you are given are not necessarily the same as the real loan you will be offered, they serve as a really good idea of what you’d qualify for.

If you have questions or are interested in learning more about home loan qualifications, then give Brian a call at 706-973-7933.