While underwrites at a mortgage company look a lot of different factors of information to help determine whether or not you will qualify for a mortgage, the four main things it boils down to are: credit, equity, income and lastly, assets.
Your credit is the single most important factor that will be considered when in qualifying for a mortgage procedure. Your history of credit is the judge in how a lender will determine the likelihood that you will pay back the money they lend you; so a good track record of how you’ve paid your loan accounts on time and whether or not you have maxed out credit cards or loans. Your credit scores will play the important role of the interest rate you will be awarded. A credit score range is 350 (low) and 850 (high). A healthy credit score would land you around 740, anything below 600 is considered poor side and the usual minimum score to be offered a loan is 620. Just remember, the higher the score the better interest rate you will get. Your credit report is also another factor a lender will look at, to check for any large outstanding collections or liens against you and also to see any new accounts you may have opened within the last year. In the event if you have any hits on your credit score, you will usually need to remedy those before you can be awarded financing.
Down Payment / Equity
The usual minimum required house down payment is 3.5% of the sales price. This percentage will allow you to qualify for and FHA loan, a superb choice if you can’t put a large chunk of money down or a first time buyer. FHA loans are a great option if you have a not so outstanding credit score, because they will not penalize you with a high interest rate.
Equity is a hard thing to come by these days for a majority of homeowners, or actually lack thereof with their properties. With the previous market crash it is not uncommon for many people having less equity in their homes now compared to a mere few years ago. Another common occurrence is a lot of people owe more on their mortgage than the actual value of their home. Most cases you have the ability to finance up to 98% of the appraised value of your home. If your home appraisal comes in low, the possibility of requirement to pay the additional funds to close the loan may be real, or you may not receive the loan at all.
Income vs. Debts
Your debt to income ratio is crucial in the mortgage lending world, which is simply just your fixed expenses with a new mortgage compared to your overall monthly income. Lenders like to see spending less than 50% on gross monthly income on fixed expenses. A healthy two year employment history is a big bonus, self-employed or part time jobs will have a little more trouble than someone with a “9-5″job.
The money used for a down payment will need to be verified by the lender that it is in a liquid account (checking or savings account). Money hidden under your mattress may do you no good here, unless you of course deposit it into a bank account, lendors need to know where the funds of a transaction are coming from.
In sum, there are a multitude of different factors that all add up into qualifying for a home loan.
Have questions about if you would qualify for a mortgage? Reach out to the Deja Lett Team for a recomendation about local lenders in the Greater Portland area!