Buying a home is an exciting life event and increases a family's chances of finding their dream home. However, preparing for the purchase requires the family to take a realistic look at their finances and create a comprehensive plan. Reviewing how to qualify for a new home loan shows families what they can expect when approaching a lender.
Evaluate Your Credit Reports
Financial advisors recommend that consumers review their credit report before they start the journey to homeownership. An assessment of their credit history enables consumers to find any discrepancies or outdated information that could be used against them when applying for a home mortgage. A dispute is filed with each credit bureau for any invalid, outdated, or incorrect debts listed on the credit reports. The credit bureaus conduct an investigation and present the findings to the consumer. If the debt is no longer valid or doesn't belong to the consumer, it is removed from the credit history.
How Much Do You Earn Each Month?
How much the consumer earns each month determines what mortgage amount is most affordable for them. New federal laws require all lenders to conduct an assessment to establish affordability for any mortgage home loan extended to consumers. Verification of the borrower's employment, pay rate, and annual wages or salary are conducted first.
What is Your Income-to-Debt Ratio?
The income-to-debt ratio also establishes affordability for the mortgage home loan extended to the borrower. It reflects what percentage of debt compared to the borrower's income. The assigned percentage must show that the borrower can afford their existing monthly obligations in addition to the monthly mortgage payments and the homeowner's and/or flood insurance required. The most preferred percentage is 36% for most home loan programs. The lender will provide details about any additional requirements that apply to the specific type of mortgage selected by the applicant.
Have You Found a Home of Interest?
Once the borrower is approved for the loan, they must provide specific details about the home of interest. Some mortgage home loans have restrictions, and the property must meet the standards of the loan program. Conventional and FHA loans require a property that can pass a property inspection. However, VA loans require the property to be in near perfect condition, and more stringent inspections are conducted to determine if the property qualifies.
How Much Can You Offer as a Down Payment?
The consumer's credit scores determine if they qualify for a mortgage home loan. However, if the consumer has a lower than average credit score, they could get approval according to how much the borrower can pay down. The value of the home, the mortgage amount, and the consumer's credit rating defines the down payment requirements. Paying a higher down payment can increase the consumer's chances of getting approval.
Homebuyers must follow the necessary steps for finding the right home and securing financing. Qualifying for home mortgages requires the borrower to have a specific credit score and income. Prospective homebuyers who want to learn more about qualifying for a mortgage contact Dustin Dimisa now.