How to Figure Out If You Qualify for a Mortgage
If you dream of owning a home, the odds are you'll have to take out a mortgage loan. But do you know if you can qualify for one? Determining this requires that you take a long look at your own financial situation.
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Things You'll Need
- An estimate of your gross monthly income
- An estimate of your monthly debts, including credit-card and other loans
- An estimation of your credit score
Instructions
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Determine your gross monthly income. This is your income before taxes, and it is one of the most important factors that mortgage lenders and banks consider when deciding if you qualify for a mortgage loan. Lenders want to work with borrowers with a stable income that has remained constant or increasing over the years. They also like to work with borrowers who have worked at the same place of employment for three years or longer.
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Determine your monthly debt. This, too, is important. Lenders don't want your debt -- which includes credit-card, student loan, car loan and other debts--after a new mortgage payment is added in to total more than 36 percent of your gross monthly income. If your debt-to-income ratio after taking on a new mortgage will be higher than 36 percent, most lenders won't qualify you for a home loan.
Figuring a debt-to-income ratio isn't easy, because you'll have to make an estimate of your monthly mortgage payment. Fortunately, borrowers can find good debt-to-income calculators on the Internet. Bankrate.com has one. See a link to it under "Resources."
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Order the three credit scores kept on you by the three national credit bureaus, TransUnion, Experian and Equifax (start by going to transunion.com, experian.com or equifax.com). These will each cost you money. But your credit score is an important number when you're trying to get a mortgage loan. Lenders rely on it to tell them which borrowers have a history of handling their finances wisely, and which don't.
Generally, credit scores range from the 300s to about 850. The more missed payments or late payments you have, the lower your credit score will be. With a low credit score, you'll pay a higher interest rate on your new loan. If your score is lower than 620, you might not qualify for a mortgage loan at all. Scores of 780 or above mean that a borrower has excellent credit.
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Call a mortgage lender or bank--just about any will do--and ask to pre-qualify for a mortgage loan. During this process, a loan officer will ask you basic questions about your monthly income and debts. This loan officer will then tell you how large of a loan, based on this information, for which you can qualify. The loan officer can also tell you if you probably wouldn't qualify for any loan.
A pre-qualification in no way forces you to work with a specific mortgage lender. It is also not an official offer of money by a mortgage lender. It is merely a way for borrowers to get a rough estimate of how much mortgage money they can borrow.
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Tips & Warnings
If you don't qualify for a mortgage loan now, it doesn't mean that you'll never be a homeowner. Build up your credit, save your money and pay off your debts. You can then make yourself a more attractive borrower to banks or lenders.
Remember that whether you qualify for a mortgage partly depends on how much you are seeking to borrow. If your qualifications are less than sterling, you may still qualify for a relatively small loan. The more you want to borrow, the higher your salary and the better your qualifications must be.
