In this blog you will learn 3 things that qualify you for a home loan. Let's get ready to be on the road to home ownership and building wealth in real estate.
"I am ready to buy a home, how much do i qualify for?" This is the question i get asked all the time. Banks and mortgage companies have moved back to traditional guidelines to determine how much buyers can qualify for a home loan. I tell my clients "everybody qualifies for a mortgage loan. But, it depends on your circumstances on how much you can borrow and there are 3 basic things that qualify you for a real estate mortgage".
The 3 basic things that qualify your for a loan that are:
Income - Mostly everybody is earning some kind of income. Banks are looking for at least a 2 year work history in the same line of work. You don't necessarily need to be at the same job for two years but you do need to be in the same field of work for for that amount time. If your coming from college or trade school and are working in the field that your were educated for or trained in, some lenders will use this as a work history. The key for work history is that your employer verify that your continued employment is likely. See "income to debt ratios" below for more on income and qualifying.
Credit - Mortgage companies put a lot of weight on your FICO scores to determine what programs are available for you. The higher the score, the more loan programs are available for you. Too low of a score and you will not meet the minimum needed score to get a mortgage loan. I want to say that they are really looking to stay away from people who are what we call "habitual credit abusers". These people have a problem making timely payments on the smallest of debts and low FICO scores typically are a result of this. Make sure that your outstanding debts are at or under 50% of the limit you can borrow and don't be in rush to pay the debt off to fast. Banks are looking for your ability to carry debt and making timely payments over a good period of time. This will get your scores up as it shows that you have the discipline to carry debt over a period of time.
Collateral - Is what you want to buy really worth the price your ready to pay? The bank will appraise the property to make sure the value is really worth that price. Value issues do pop up in real estate transactions so make sure you have discussed options with your Realtor.
Income to Debt Ratios
Income to debt ratios are most of the time the bottom line for a bank approving you for a mortgage loan. Standard conventional ratios have been what we call "28 over 36". This means that no more than 28% of your income can go to the total mortgage costs (PITI) and no more then 36% of your monthly income could go to your total mortgage costs combined with your revolving debt payments. FHA loan guidelines will allow for a 34-36 over 41 ratio to help buyers get more out of their income. PITI stands for principle, interest, taxes and insurance. Banks look at these cost as a total of what it takes to maintain that property. There are exceptions or what lenders call compensating factors that can allow for the stretching of ratios. Feel free to ask me any questions you have below.
Things to Keep In Mind
So make sure to look at your credit scores as they need to be above 620. Make sure your debts are 50% or less of their limits and that you show that you can carry debt for a good amount of time. Your income is what it is, so that could be the big cap on what you can afford. Keeping your revolving debt low helps to put more money towards the mortgage payment . Try not to pay too much for a home so you won't have appraisal issues and if you do, make sure you have already talked with your Realtor about options just in case.
If you have questions for me please leave a message below and I get back to you with in 24 hours.
I have been in the real estate industry for over 20 years with a working background in Escrow and Residential Lending. The iMarketLA team and I offer unparalleled knowledge of the real estate industry and service designed to be quick and friendly. We pride ourselves on helping clients build wealth in real estate.
Contact us now for a free evaluation on home buying. We can tailor a plan just for you and your family.