Will I Qualify for a Mortgage?

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People in the market for a new property may question whether they're able to qualify for a mortgage loan. Several factors impact home loan approvals, and lenders will reject applications if a borrower doesn't meet their requirements. Learn the basics of qualifying for a mortgage loan to improve the likelihood of an approval.

Qualifying and Credit

  • A low credit score can result in a mortgage loan rejection. Credit scores provide lenders with some indication of how well you'll manage a home loan. If you regularly pay credit cards and other bills late, a lender may assume that you'll pay your mortgage late, as well. Reversing a bad payment record and always paying on time are key to boosting a low score and meeting a lender's credit score requirement. Mortgage lenders generally look for scores of 680 and higher.

Debt and Mortgages

  • The fewer debts you hold when applying for a mortgage loan, the easier it is to qualify for financing. Debts impact mortgage approvals. Lenders evaluate debt-to-income ratios, essentially the percentage of your earnings used for debt payments each month. Affording and qualifying for a specific mortgage amount involves paying no more than 36 percent of your gross income on debt payments each month; and the mortgage payment by itself cannot exceed 28 percent of your gross monthly income. Getting rid of credit card debt and deferring auto loans until after you've purchased a home helps keep debt-to-income ratios to a minimum.

Income

  • Having consistent income, which is evident if you've worked with the same employer or within the same industry for 24 consecutive months, helps you qualify for financing. Lenders may hesitate to approve your home loan application if you have employment gaps or repeatedly switch between employers or industries. Keep accurate income and employment records for two years --- tax returns, paycheck stubs and banking statements.

Mortgage Pre-approvals

  • Meeting with a home loan broker or lender and acquiring a home loan pre-approval removes the guesswork in buying a house. Pre-approvals not only provide indication as to whether you can qualify for a mortgage; but they let you know the exact amount that you qualify for prior to bidding on a home. Pre-approvals involve submitting your income and employment information to a home loan lender, which will review your credit score and history to determine eligibility.

Down Payments

  • Some mortgage loans require a down payment, and not having the needed cash can affect your ability to qualify for a mortgage. A broker or lender can provide specific down payment requirements for various mortgages. But on average, down payment minimums can range from 5 to 20 percent of the sale price for home loans insured by the Federal Housing Administration (FHA) and conventional home loans, respectively.

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