How to Know If You Can Qualify for a Mortgage
If you want to become a homeowner, you'll probably need to take out a mortgage loan to reach this dream. And to take out a home loan, you'll have to apply to a mortgage lender or bank. These lenders will look at your credit history, gross monthly income and debts to determine if you qualify for a loan, how much money you'll qualify for and what interest rate you'll be paying on the money you borrow. If you want to know if you can qualify for a mortgage, you'll have to take a look at your own financial situation.
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Things You'll Need
- Estimation of your gross monthly income
- Estimation of your current debt, including the debt you carry on your credit cards, student loans and car loan
- Employment history
Instructions
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1
Calculate your gross monthly income. This income includes the money you receive, before taxes, from your employer. But it also includes any money you get from financial settlements, rental properties or other sources.
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2
Determine how much debt you owe each month. This includes your car and student loan payments and the minimum monthly payment required by your credit card company.
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3
Estimate your debt-to-income ratio. Add the estimated amount of what you think your new mortgage payment will be to the amount of debt you calculated in Step 2. Divide this by your gross monthly income to come up with a percentage. For instance, if your monthly debt obligation is $1,500 and your gross monthly income is $4,500, you have a debt-to-income ratio of about 33 percent. Lenders like to work with borrowers whose ratio is under 36 percent. If yours is much higher, you might not qualify for a mortgage loan.
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Order a copy of your credit score. You can get an exact score by ordering the three credit scores kept on you by the three national credit bureaus, Experian, Equifax and TransUnion. Lenders usually rely on the middle of these three scores. You'll normally have to pay for each score you order--Experian, for example, charges $15. Borrowers with scores under 620 will struggle to qualify for a mortgage loan. Those with scores of 720 or above will usually qualify for the lowest mortgage interest rates.
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Document your employment history. Lenders like to work with borrowers who have worked at one place of employment for three years or longer. This shows them that you have a stable, consistent source of income.
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Call a mortgage lender and explain that you'd like to pre-qualify for a mortgage loan. The loan officer will ask you some basic questions about your gross monthly income and your debts to determine how much money you can borrow. Be aware, though, that a pre-qualification is in no way an official commitment from a lender or bank. These lending institutions need you to submit financial documents such as tax returns and checking account statements, and approve a credit check, before they can give you a more formal pre-approval. A pre-qualification--which does not obligate you to work with any lender--merely gives borrowers a rough idea if they qualify for a mortgage loan and how much money they can borrow.
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Tips & Warnings
If you find that your debt-to-income ratio is too high and that your credit score is too low, you might want to improve both figures before applying for a mortgage loan. Pay your bills on time, cut down your debt and close unneeded credit card accounts. This will cause your credit score to gradually rise and your debt-to-income ratio to fall.
