Learn What It Takes to Get a Home Loan
Qualifying for a home mortgage loan was once a fairly simple process because mortgage lending guidelines weren't as rigid. Applicants with less than perfect credit could qualify for a home loan, and lenders used to offer a variety of flexible loan options, such as no money down loans.
The mortgage lending industry has changed dramatically since the 2008 collapse of the housing and banking industry. As a result of past poor lending choices, mortgage lenders have tighten the belt and adopted a more selective lending approach. This stricter approach weeds out risky applicants, but some applicants now discover that they're not eligible for a mortgage.
Applicants can avoid disappointment and improve their chances of qualifying for a home mortgage loan by doing their homework and understanding a lender's expectations. Being rejected for a mortgage loan isn't the end of the world. However, moving forward with the lending process and acquiring keys to a new home requires conforming to a lender's guidelines.
Evidence of regular, consistent income is key when qualifying for a mortgage loan. Mortgage lenders must believe that you're capable of paying your mortgage payment each month. Being ready and having the necessary documents handy facilitates the loan process. Documentation includes copies of your complete tax returns, paycheck stubs, bank statements, or income paperwork. Supply records for the past two years as proof of a stable income stream.
Qualifying for a home mortgage loan requires a good credit score, which indicates a good payment record. Your credit score is a three-digit number that's based on your credit habits. A history of paying your bills late can lower your score and negatively impact your ability to qualify for a mortgage and other loans. Mortgage lenders are inflexible with regards to credit scores and each lender establishes a minimum for mortgage approvals. Conventional lenders typically require a score no less than 680, whereas FHA mortgage lenders approve borrowers with a minimum score of 620.
Present debts also play a role in mortgage approvals, and paying off your debts is one way to improve your loan approval odds. The amount that you now owe your credit card companies and other lenders not only affects your credit score, but also affects whether you qualify for a mortgage. Mortgage lenders use your debt ratio as basis for a mortgage approval. Two separate ratios decide if you can qualify for a mortgage loan -- debt-to-income ratio and housing ratio. On one hand, the sum of your monthly debt payments, including your new home mortgage payment, cannot exceed 36 percent of your total gross monthly income. Debt payments include bills for credit card minimums, auto loans, student loans, and other fixed expenses. In addition, your new mortgage payment cannot exceed 28 percent of your gross monthly income.
Mortgage Down Payment
Some mortgage applicants mistakenly apply for a home loan thinking that they'll qualify for zero down. Mortgage rules on down payments have also changed, and regardless of whether you have an excellent credit score and history, mortgage lenders need some type of down payment as of 2012. Average down payments to qualify for a home mortgage loan are between 5 and 20 percent of the purchase price.