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If you think now is an excellent time to buy a home, chances are you need a mortgage. Mortgages can come from banks, credit unions, or other financial institutions. Still, any lender will want to ensure you meet some essential qualifying criteria before lending you the money to buy a home.
In this article, we explain some key factors when determining whether you qualify to request a mortgage loan.
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Qualifying for a mortgage loan
You can usually grasp an idea of whether or not you qualify for a mortgage by looking into your own finances.
You will have the best chance of being approved for a mortgage if:
- Your credit score is above 620.
- You have a down payment of 3-5% or more.
- Your current debts are low.
- You have had a stable job and income for at least two years.
But keep in mind that the rules for a mortgage approval are not set in stone. Each home loan program has different eligibility requirements, and lenders can set their own rules, too; some are much more flexible than others when it comes to loan approval.
Approval vs. Pre-approval
Although similar to loan approval, mortgage pre-approval occurs when the lender approves you for a specific loan amount after reviewing your credit score and financial documentation.
Your loan officer will issue a pre-approval letter, which is usually good for 60-90 days. Pre-approval generally occurs early in the home buying process.
A pre-approval letter is helpful when you're looking for a home because it tells real estate agents and sellers that you're a serious buyer. Also, pre-approval sets the price range of homes you can afford.
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Pre-Approval vs. Pre-Qualification
Mortgage pre-qualification and pre-approval are useful tools for both buyers preparing to purchase a home and homeowners looking to refinance.
When a lender pre-qualifies you, they give you a general estimate of the loan size you might qualify for. Mortgage pre-qualification is based on self-reporting your monthly income, credit history, and other financial details.
On the other hand, mortgage pre-approval is a rigorous check of your finances that yields a specific amount of money that the lender is willing to finance.
With a pre-qualification, you will know the following:
- Your payment capacity.
- The options of houses that you can buy.
- The amount of credit you could get from your bank.
- The deposit you need to start the procedures.
- Closing cost details.
Factors considered when granting a mortgage
Obtaining a mortgage loan can be simple if you show that you are responsible and have the ability and intention to pay. These factors have an impact when calculating the mortgage loan that we can offer you:
Stability: We highly value the strength of your employment. The longer you have been working in a company and the more stable your employment is, the better chance that the requested credit will be approved.
Monthly income: By presenting us with your payment stubs or an account statement, we can validate how much of your income could go into paying the loan you are requesting. This is why we ask you if you pay rent, have people who depend on your salaries -such as children or parents, and about other monthly expenses you may have. At FirstMortgage, we ensure that you do not get over-indebted to guarantee your financial health.
Payment history: If you pay all your agreed debts and pay off your credit cards on time, your history will remain clean; leading to a higher score when calculating your mortgage credit.
Credit History: Your credit history is affected not only by how long you've had access to it, but also by trends and refinancing requests. Constantly applying for new credit, or frequently refinancing your debts, could lower your score when it comes to obtaining a loan.
Experience with other types of loans: Past experience with other loans, such as car loans or loans to pay for university studies, reflect that you are a responsible and trustworthy person who has managed their finances well.
Current debts: Being too close to your credit limits could demonstrate a higher risk of absence and impact your credit score. This is why keeping debts low and paying off card balances monthly is essential.
To increase your chances of qualifying for a home loan, you must know your income, debts, credit score, and assets.
If you have good results from these, it is more than likely that you will be approved for the mortgage. If, perhaps, you do well on two of these aspects and not so much on another one, you still have a good chance of qualifying. Remember that you will not know if you are qualified until you apply.
Do you want to be a homeowner? Apply today and acquire our mortgage loan
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The contents in this section are provided for informational and educational purposes only and do not apply to all types of situations. The contents should not be construed as any type of advice or suggestion to take (or refrain from taking) any particular action, as it does not include or take into account all factors that may be relevant to your individual needs.