As you know not every person who tries to get a loan qualifies for a loan. Banks want to feel that whoever they give a loan to is able to pay it back. The first thing you need to do is you have to have your financial business in order if you want to get a loan.
The four main things that lenders look for when you go apply for a loan for a home are:
- Down payment money- Lenders require you to have enough money for a down payment. A down payment for a home is usually anywhere from 3.5% to 20% of the purchase price. Currently USDA is offering 100% financing (or 0 down on area specific homes). If you are looking considering pursuing a USDA loan be sure to find a loan officer that has had experience processing these loans. (I have had sellers who have had their loan fall through because the loan officer was inexperienced with the unique requirements for USDA)
- Two years of steady employment- The lender wants to see that you can hold a job so you can pay the loan. It can be in the same field or one job that was held for two consecutive years.
- A Good Credit Score- A lender will be quicker to give someone with a good credit score a loan. A good score is considered anything from 620 and above. If you need to improve your credit score,
- Your monthly income has to be two to three times higher than the mortgage you are going to pay. They want to feel that you can cover your mortgage without having hardships that may cause a default (force you to go into foreclosure and the bank repossesses the house).
- Understanding your Debt-to-Income Ratio. Not only does your income have to be 2 or 3 times higher than your mortgage payment; often different lenders have different criteria for the debt to income ratio depending on what type of loan one is applying for (ie FHA, USDA, or Conventional). The Debt to Income Ratio is supposed to help the lender figure out How Much House you can really afford.
If for whatever reason you do not have these 5 things you don’t have to panic. You can still meet with a lender anyway so they can tell you what you need to do in order to qualify for a loan eventually.