How to Reach Home Mortgage Qualifications
Home buying is an exciting, albeit daunting, process. Especially for first-time homebuyers, knowing what home mortgage qualifications you will need to reach, and what the loan application process will look like, can be stressful. However, with the right knowledge you can better prepare yourself and dive into the process with confidence.
Here are some of the mortgage qualifications you must meet and some ways you can reach those requirements.
One of the most important things lenders will look at when considering you for a home loan is your credit score.
Put simply, the higher your credit score, the more likely you are to be approved for a loan. A score of 760 or higher will give you the best chance at being approved with the lowest interest rate. However, that doesn’t mean you have to have perfect credit in order to be approved. Any score above 650 will likely get you approved for a conventional home loan.
It is important to check your credit score before applying for a mortgage so you can make sure everything is in order. Make sure any derogatory marks are legitimate, and sort out any mistakes that may be present. If your score is low, spend some time raising it–the extra time spent building your credit will pay off when you’re ready to apply for your home loan.
Another thing that lenders will look at is your debt-to-income ratio. Your income must be high enough to offset your monthly debts, including a potential mortgage payment.
In order to calculate your debt-to-income ratio, you’ll need to total up your monthly debts. This includes credit card bills, student loan payments, car payments, etc. Once you’ve calculated your debts, divide the figure by your monthly income; this will give you your DTI ratio.
The typical DTI ratio threshold for loan approval is 36%. Use a home affordability calculator to see how much you can afford to put towards a down payment, as well as monthly mortgage payments, while still staying below the 36% mark.
Lenders prefer to see at least 2 years of consistent income for a potential borrower. If you don’t have consistent income, or you’re just starting out in your professional career, you’ll likely need to have enough money saved for a larger down payment in order to be approved for a mortgage.
Most lenders want borrowers to have enough money to make at least a 20% down payment. It is extremely important to save up as much as possible to put towards a down payment, so that you increase your odds of being approved for a mortgage at a lower interest rate. The mortgage qualification for being approved for a conventional home loan is at least a 10% down payment.
Anything less than a 20% down payment will require you to also pay private mortgage insurance, which can cost you anywhere between 0.3% – 1.5% of the total loan amount each month.
Find Your Dream Home With Brightstar Realty & Rentals
Go into your home buying experience with the preparation and confidence you need to get approved for the best loan possible. Keep these tips in mind and make your home ownership dreams a reality!
For professional assistance during your home buying journey, contact Brightstar Realty & Rentals today!