Buying a house is a lengthy process that requires much time and all your attention. The first 6 weeks, which is the minimum amount of time it takes for a sale to go through, you are constantly running back and forth between the lender and your real estate agent to make sure that all documents are in order.
Before, it was quite difficult for people to qualify for a loan. Most of the people were concerned with the initial cost that is required outside the mortgage scope and is needed to pay for signing of the documents. Moreover, there were limited loan options available and people mostly assumed that they could only get a mortgage from a bank. However, times have changed and you now have the option to get a mortgage with as low as 3.5% down payment or no payment at all.
Let’s have a look at all the factors that allow you to qualify for a mortgage:
House’s Appraisal Value
The first thing lenders ask for is the house’s appraisal value, so that they can decide on a loan amount. The lenders require this to protect themselves and to find out if the house’s market value matches the loan amount the buyer is asking for. An appraiser uses comparable sales and the current real market conditions to come to a value, which is then given to the lender. Once the house is appraised, you can now officially apply for a loan.
Before agreeing to the loan amount you are asking for, the lender looks at your credit score to determine whether you will be able to make the monthly payments or not. There are many factors involved in this step, such as your monthly income from a steady job, your debt-to-loan ratio and your identification. If you have previous outstanding debt, then a lender might refuse to give a loan. The reason we say might is because a few lenders are open to giving a loan but it comes at a higher down payment and interest rate.
The minimum credit score required for a mortgage loan is between 640 and 680. Following are the different types of loans with their credit score margin:
- VA Loans: 620 (Some lenders might approve 580+)
- Conventional Loans: 640
- FHA loans: 580
- USDA Loans: 620
- Conventional 97: 620
- 203k Loans: 640
Down Payment Guide
You do not have to come up with a 20% down payment to buy a house! As mentioned earlier, a few loan programs have a 0% down payment policy, for which first time homebuyers as well as second time homebuyers are eligible. You can also use gift funds to leverage your mortgage but this requires the lender’s approval.
Following are the different types of loans with their down payment margin:
- VA Loans: 0%
- Conventional Loans: 5% to 20%
- FHA loans: 3.5% (The lower the score, the higher the down payment)
- USDA Loans: 0%
- Conventional 97: 3%
- 203k Loans: 3.5%
In order for your income to be validated for the mortgage loan application, you should have received it from the same company, for the past 2 years. Following are the income types that qualify you for the mortgage:
- W-2 Income
- Second Job income
- Part-time jobs income
- Seasonal jobs
- Bonuses and overtime
- Child support and alimony (Documentation required)
- Self-employed Income
Required Mortgage Documents
- Past 2 years W2’s
- Divorce decree
- Pay-stubs from the past 3 months
- Additional income documentation
- Past 3 months bank statements
- List of your assets and debts
- Past 2 years tax returns
And that’s it! Now you are fully equipped with all the information to apply for a mortgage. As long as you keep the monthly payments steady, you don’t have to worry about foreclosure. Happy house hunting!