February 2nd, 2017 5:38 AM by Jackie A. Graves, President
Are you fed up with renting and
are ready to take the plunge into buying a home? Buying your first home is an
intimidating process for many people and understanding mortgage requirements
come with an expensive learning curve. Doing your homework on how to qualify for a mortgage can help you avoid many of the
mistakes made by first-time buyers. Here are several tips on how to qualify for
a home loan that every home buyer should know before applying.
While it is possible to buy a
home without a down payment, it's a good idea to approach lenders with a down
payment in hand. One of the mortgage requirements that determines your
eligibility in addition to the minimum credit score for mortgage loans is your loan-to-value ratio (LTV).
The more favorable the ratio of how much the property is worth to the amount
you're borrowing, more qualified you become.
case scenario, you want to have a maximum LTV of 80 percent (or a 20 percent
down payment). Lower LTVs are better and can help you qualify for a better
interest rate. If you're not able to save up enough of a down payment to keep
your LTV below 80 percent, you could be required to purchase private mortgage
insurance even if you're not using an FHA home loan for the purchase.
It's a good idea to determine
how much home you can afford before you start looking at properties. The amount
of your down payment, your income and how much debt you have determine how much
house you can afford. You can use a home affordability calculator to determine your price range and even
help you get prequalified from several of today's best mortgage lenders.
When you're ready to start
shopping for a home loan you're going to encounter "pre-approval"
and "pre-qualification" from various lenders. What's the difference?
Pre-qualification does not require your social security number and allows you
to compare loan details without having your credit accessed. Pre-approval means
the lender runs your credit and evaluates your finances. This is the most
accurate way to shop for a home loan; however, it does require your social
security number and results in a hard inquiry on your credit report.
to the table with 20 percent is ideal; however, if you can manage 15 or even 10
percent you'll be in a much better position when it's time for closing. The
more you can put down at closing, the more ownership you'll have, and the less
you'll pay in financing over the lifetime of the loan.
Mortgage lenders require that
your total monthly debt including car loans, credit card bills, and student
loans be no more than
36 percent of your gross monthly income. This is your debt-to-income ratio. If
your ratio is too high, consider paying down high interest credit cards to get
below the required limits. When planning a budget remember that your mortgage
payment will likely include taxes and property insurance.
Your credit score is a major factor lenders use in
determining your eligibility for a home loan. Maintaining a credit score of 720
or better will earn you the most favorable mortgage
rates. If your credit score is not 720 or better you can still get
approved but might now qualify for today's lowest rates.
happens if your credit score is less than 620? If you have a lower credit score
and less than 20 percent for a down payment you might find lenders denying your
application. This doesn't necessarily mean you can't get a mortgage, you may
need to apply for with lenders that cater to borrowers in the
"subprime" category. Subprime borrowers have to pay much higher
interest rates and fees because there is greater risk of foreclosure for the
job history is an important consideration for your ability to repay the
mortgage. Borrowers who have been working at the same job for two or more years
will receive more favorable consideration than someone who hops from job to job
without achieving longevity. If you're self-employed or work for commission
your lender may ask to see bank statements to substantiate past income history.
yourself with knowledge before purchasing your first home can save you
thousands of dollars from unnecessary interest and fees. Buying the perfect
home is stressful enough, cutting out ambiguity will make purchasing your home
much more enjoyable.
Courtesy of Lending Tree - To view the
original article click here