How to Qualify for a Mortgage Loan

The mortgage lending process can be complex, so the steps you take to position yourself to qualify for a mortgage loan are critical. The primary factors for securing a loan are understanding your debt load and credit score, and saving money for the downpayment or to cover closing costs. It may take time to put you in a position to qualify for a mortgage, but there is plenty of inventory available so the wait will be well worth your time.

Difficulty:

Moderately Challenging

Instructions

1. Save money. Even if you are getting a loan that will pay 100 percent of the home's cost, most mortgage loans will have closing costs that you will be required to pay. Closing costs vary, but can exceed $10,000.

2. Know that past due unpaid debt, such as collections and judgments, must be paid prior to obtaining a mortgage loan because they represent a potential lien on the property. Lenders will usually not approve loans to people who have these types of outstanding debts except in situations where the statute of limitations on those debts have expired.

3. Obtain a copy of your credit report. You can write to the main three credit bureaus -- Experian, Equifax and Trans Union -- and request an annual complimentary copy of your credit report. Once you receive all three reports, make sure it is accurate and that all past due debt is paid current. If you are refinancing your home, most lenders will allow you to pay outstanding debt with the new loan you are making on the home. If you have a credit score of at least 620, then you will most likely qualify for a decent interest rate. If your score is less than 620, you may only qualify for a sub-prime rate, which is a higher rate.

4. Know that if you are self employed, you must have had your business for a minimum of two years. Your tax returns and bank statements will usually be required.

5. Consider that if you are employed by a company that you don't own, you must be able to document your last two years of employment, provide your most recent pay stub and your most recent W-2 tax form.

6. Be aware that your income and credit score will tell your lender what type of loan and what amount you qualify for. The higher your credit score and the greater your income, the more loan programs you usually qualify for.

7. Know that you must document your last two years of residency.

Tips & Warnings

• Do not rush to get a home loan. Take your time and qualify for what you can afford.

• Do not mislead your lender when qualifying for a loan because it will have the ability to revoke your loan and you could lose your house.

References

• Realtor.com: Qualifying for a Mortgage