If you are looking to purchase a home and you need to get a mortgage, there are a few things that you can do to help prepare yourself to be able to qualify. A mortgage is a big commitment and every lender wants to make sure that you are able to pay the loan back. There are 3 basic things that the lender is going to look at to measure your financial stability. They are 1. Your credit report, 2. Your assets, and 3. Your income.
1. Credit Report: Your credit report is your financial report card and it's imperative that you know what is on that report card so that you can fix it if necessary. For most conventional loans today you will need a credit score of at least 700 and for FHA loans at least 620. If your score is 619 you are out of luck. So find out what your score is and talk to a good loan officer than can help you increase it if necessary. You can go to experian.com, equifax.com, and transunion.com to order your reports for free.
2. Your Assets: If you plan on using a down payment, you better be able to show the lender that you have it in the bank, and not in a business account. In some cases the lender will also want to see that you have more than just the down payment just in case you lose your job. It's a good idea to have some reserves anyway, even if you are using a 100% financing program. Set the goal now to save at least 10% of your monthly income and make this a habit through out your life.
3. Your Income: The name of the game with income is "stability". The lender wants to make sure that your current income is going to continue. If you are self-employed, you will need a 2 year history on the job before you can use this income on a loan application. Same rule if you are part-time. If you are receiving bonus or commission income the lender will take a 2 year average of this income to calculate the monthly income. If you are receiving SSI, you need to prove that it will continue for at least 3 years. If you recently graduated from college and have begun working at a salary-paid position, this income can be used immediately.
These are the 3 most fundamental elements of qualifying for a mortgage. It's possible that you are ready now but if you are not, sit down with a qualified loan officer and set some goals to get yourself ready.
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