What It Takes To Qualify For a Home Mortgage

Mortgage Calculator

Mortgage CalculatorWhen applying for a mortgage, there are a few things that lenders weigh when determining if you will be accepted for financing, and containing a strong balance of all these factors will help the process go smoother and grant you better loan terms. Here is a list of what you need:

1. Steady Income

A monthly income that looks promising for years to come is what lenders really desire. One thing that could potentially hurt your chances is having any sort of gap in your working status within the last two years. You will need to provide details as to why you were not working during that time. Lenders want to see that you have a steady monthly income that you will have no trouble paying monthly dues in the foreseeable future. If you are are self employed, the lender will average your income for the previous two years. If you are a W-2 employee, you will have to prove of employment by providing copies of your recent pay stubs. 

2. Good Standing Credit

Typically, you would need a 700 score or above to be accepted for a home mortgage. (If you’re unsure of what your score is, we recommend signing of for credit karma. Its free, shows two of the three scores, and gives advice on how to fix your credit) If your score is not 700 or higher you still have an opportunity to qualify, the lender will take a close look at any deficiencies that could be hindering your credit. However, the minimum to even be considered for a loan is 580. There are six main factors that go into the number that makes up your credit score: Credit card utilization, payment history, amount of derogatory marks (for example, a bill that is left unpaid that gets sent to collections), the average age of credit history, total accounts open (credit cards, loans, etc) and amount of recent hard inquiries. The first two are the most important. If you can try to knock the utilization of your credit cards to 30% or lower and remember to pay all payments on time, your score will get a nice boost.

3. Low Amount of Debt

Debt levels can be tricky to maintain at a low amount, but it is very important in determining wether you are good at paying back what you owe. The bank likes to see a debt level that is no more than 10% of your yearly income. Deciding on taking out a mortgage will likely take up a huge sum of your monthly income. By paying 10% of your monthly obligations, you will likely find enough room to squeeze in a mortgage payment. Determining the sum in which you will qualify for, depends on the amount of payment that fits in with your other financial obligations. 

The candidate that the mortgage lender looks for would likely have a credit score of 720, down payment of 20% and a debt-to-income ratio of around 35%. They also would have a solid monthly income and a good history of making payments on time. Understand that the higher amount that you put down for a home, lower the amount of your mortgage payment.