March 20th, 2019 11:38 AM by Jackie A. Graves
Sometimes I tend to skip past the seemingly basic mortgage questions, assuming everyone already
knows the simple stuff. Unfortunately, that’s not the case, and what may appear
basic isn’t really so straightforward.
So let’s talk
about qualifying for a mortgage. Unsurprisingly, it’s actually a pretty complex
you are asking a bank to loan you a ton of money for a long period of time.
They’ll want to know you can actually pay it all back.
– The Mortgage Qualification Process
– The Home Loan Submission Process
– Keys to Qualifying for a Mortgage
– Use Common Sense and Think Like the Lender
– What You Need to Qualify for a Mortgage
There is no one-size-fits-all
Some lenders may say no while
others says yes
It depends on their risk
But your goal should be a
smooth loan approval no matter where you apply
thing I’ll say on this topic is that qualification for a mortgage can vary
greatly from bank to bank, and also by loan type.
For example, one lender may allow credit scores as low as 550
for FHA loans, while another may require a minimum credit
score of 620.
lender necessarily offers the same product or abides by the same underwriting
guidelines, so some may approve you, while others may say, “No way!”
a little thing called “risk appetite,” and not every bank is as hungry as the
illustrates why shopping around is paramount to secure the best deal, because
one bank may agree to do business with you, but not at the best terms.
important to find the right lender for YOU.
Tip: A mortgage broker can
shop your loan application with multiple banks and lenders all at once to find
you the lowest rate with the fewest fees.
You can use mortgage
calculators on your own and get pre-qualified first
Or take things a step further
and get pre-approved both online or in-person
It might be advisable to do
this several months out to avoid any surprises
That way you can address any
serious issues that might take time to resolve
interested in purchasing a home with the help of a mortgage (cash buyers need
not apply), your starting point would be getting pre-qualified.
a “pre-qual” allows you to first see if you’re even eligible for a home loan,
and secondly to determine how much you can afford based on income, asset, and
credit score estimates.
basically tell a bank or mortgage broker that
you do “X” job, make “X” amount each month, have “X” credit score, and can put
“X” down. It’s a starting point that relies on a lot of estimates.
Most will ask
you to go a step further and run some hard numbers, such as figuring out your debt-to-income ratio,
to see what mortgage amount you can qualify for.
everything looks good, they may get you a more robust mortgage pre-approval,
which is a commitment from a bank to lend you the money you need to make the
home purchase in question.
you can run the numbers on your own without anyone’s assistance if you’re just
casually wondering where you stand.
numbers you come up with might be quite a bit different, so if you are serious
about home buying, it’s wise to get a lender’s eyes on your financials.
Tip: Do this as soon as
possible so you have time to correct any issues or roadblocks. It takes time to
fix stuff, so giving yourself plenty of time is a smart move.
You apply for a loan either
online or in-person
Your sign disclosures and
A loan processor organizes your
It is then sent to an
underwriter for decisioning
If approved you must satisfy a
list of conditions in order to fund the loan
loan submission process may vary depending on the lender you use and your own preferences,
it generally begins with an online or in-person application.
initial application is completed, you must sign disclosures in order for the
lender to pull your credit and gather other financial documents on your behalf.
asked to send or upload financial statements like bank account information, pay
stubs, and tax returns so your loan can be properly underwritten.
processor will typically get involved at this point and organize your loan file
before presenting it to the underwriter for a decision.
they’ll want to make sure all your ducks are in a row before an underwriter
gets their eyes on it and proceeds to scrutinize heavily.
pass muster, your loan will be conditionally approved by the underwriter and
you’ll need to send in additional documentation to get to the finish line.
At the same
time, a home appraisal will be ordered to ensure the
collateral is up to snuff and valued properly.
The process can take anywhere from 3-6 weeks depending
on the circumstances, so you’ll need to be patient. And cooperative to keep
things moving along.
Now let’s talk about
what it takes to qualify for a mortgage.
you’ll need an adequate credit score, along with sufficient income to make the
proposed mortgage payment each month.
[What credit score do I need to
get a mortgage?]
speaking, a credit score below 620 is considered subprime in the mortgage world and will make
qualifying for a mortgage that much more difficult. But it’s still possible
depending on lender and loan type.
If you’ve got
previous foreclosures on your credit report, things will get even more
problematic and you may not even be eligible for a certain period of time.
But if your
credit score is above 740 and you’ve got some decent credit history to back it
up, you should have access to the lowest mortgage rates and a wide array of
in between should still work, though there might be pricing hits associated,
which all else being equal, may bump up your interest rate.
Tip: Lenders want to
see a minimum of 3 active credit tradelines with two-year history on each to
assess your creditworthiness.
As far as job
history goes, it’s important to show the mortgage underwriteryou’ve
had (and still have!) a steady job, typically for two years or longer.
essentially proves that you will continue to receive regular income to make
those costly mortgage payments each month for the next 30 years.
If you just
graduated and have held a job for a mere two months, don’t expect to qualify
for a mortgage unless your new position directly correlates with what you
studied in school.
if you went to medical school, and now have a job as a doctor, this might be
sufficient to qualify for a mortgage.
But if you
were an art history student who has been working as a flight attendant for two
months, mortgage lenders probably won’t feel comfortable lending to you just
yet. Make sense?
out your mortgage, you’ll also need to consider the mortgage down payment
requirements, which vary depending on the type of loan you’re after.
are still some zero down mortgages around,
namely VA loans and USDA loans, it certainly helps to set aside some assets so
you’ve got something to put into your home purchase.
the amount of money needed will also vary based on the purchase price of the
home. If you want a more expensive house, expect to put more down in order to
talking about a mortgage refinance, you’ll need a certain amount of home equity
to qualify for the mortgage, as determined by loan-to-value ratioconstraints.
Would you approve YOU for a
If not, address those red flags
Don’t guess, run the actual
numbers with a professional
And ask plenty of questions if
you’re unsure about anything early on
When it comes
down it, it’s all pretty much common sense. Do you think you can/should qualify
for a mortgage?
Do you have a
track record of making on-time payments, carrying large amounts of debt and
paying it down, holding a job, and saving money?
Are you ready
to make a big commitment? If you were the bank, would you lend you a
[How much house can I afford?]
I would guess
that most prospective homeowners could assess the situation beforehand and
determine if they should be granted a mortgage.
running the numbers, you won’t know for certain. So be sure to do plenty of
calculations and speak with a loan officer or two to see where you stand.
able to get you a quick answer so no one’s time is wasted.
general list of what you need to qualify for a mortgage. Keep in mind that
qualification requirements vary greatly by lender and loan type.
cases, you won’t need all of these things, but it should certainly make life
easier to satisfy everything on this list.
History – minimum of 3 active tradelines with 2-year history on
each (credit score minimums vary)
History – at least 2 years on same job or in same line of work
(recent graduates with new jobs in certain fields like doctors and lawyers may be exempt)
verifiable income (tax returns, pay stubs) for the past two years that
satisfies debt-to-income ratio limits
enough to cover down payment, closing costs, and at least two months of
mortgage payments (known as reserves)
History – proof of clean rental history for the past two years is
also important to show the lender you have a propensity to pay on time each
month (those currently living with their parents may be
excluded from this rule).
If you can’t
satisfy these basic requirements, you may want to keep renting, saving, and
working on your credit until you can.
adding a co-signer who is better qualified to apply for a mortgage.
don’t be discouraged. There are lots of home loan programs and creative options
out there to suit all different needs. As noted, one lender may say no while
another says YES.
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