Qualifying for a mortgage for either a home purchase or refinance can be an easy process. By honestly answering the following questions, you will be positioning yourself for success, identifying areas (if any) that need additional attention to successfully qualify for a mortgage.
Please keep in mind that not every item needs to be perfect to be able to achieve success but the overall application has to be acceptable to the lender. A mortgage professional can give you an comprehensive analysis of your circumstances and identify aspects commonly missed to ensure you present the best possible picture of you to your lender.
Do you have steady income for the past 2 years? This can be interpreted differently based on your circumstances, so if you have gone through a tough period, it does not necessarily mean you’ll be rejected. Unemployment income could potentially be used to qualify for a loan. You will be asked to document your income using pay stubs, W2s, 1099, tax returns, etc. for the previous 2 years.
Do you have income for the projected payment? This is a 2 fold question. First, your usable income needs to be calculated based on how you receive it. For example, if you are paid hourly or by a salary -what is your monthly pay? Do you receive other forms of consistent income that you would like to use to qualify – such as social security, child support, 2nd job, retirement, etc.? If you are self- employed, a corporation or receive commission income, what is reported on your tax returns? (An analysis of tax returns with all schedules will determine what income may be used to qualify for a loan).
To qualify for a mortgage, the backend ratio generally cannot exceed a range of 41-50% depending on the mortgage program. The backend ratio is determined as (house payment + debts)/income. Generally speaking, most but not all, of the measured debt is determined by using a tri-merge credit report. However, knowing your individual expenses will go a long way in determining a payment amount that works for your lifestyle and goals.
How is your credit history? Do you have active accounts- car loan, credit cards, etc., how many do you have, when and where were they started, and what are the current balances? Have you made your payments on time? Reporting late payments will not necessarily result in a denial of your loan application. Knowing when they happened and if there were extenuating circumstance can affect qualification. Something to keep in mind is that it is possible to dispute inaccurate information and you should do so with all 3 major credit reporting agencies if you determine discrepancies or inaccurate information in your credit reports.
Do you have any collections, judgments, or bankruptcies on your credit report? These are not an automatic disqualification either. These items are sometimes viewed differently by different loan programs. By knowing the status of these items (open, closed, discharged, etc.) and what date they were reported to the credit agencies will determine what steps need to be taken to qualify for a mortgage. Depending on the mortgage loan program, there are items that may need to be paid at or prior to closing on a mortgage or a specific time must have elapsed before qualifying for a particular type of mortgage. Even then, depending on the program, you may still qualify for your loan but may be charged slightly higher interest rates on your loan.
Do you have a good credit score? You do not have to have a perfect score. What is considered an acceptable credit scores varies base on the lender’s requirements and on the mortgage program requirements. Acceptable credit scores can change from lenders quickly, so if you consider your credit score to be low, it might not be for a particular lender. Generally speaking, the higher the credit score the more options are available to you and this is where a mortgage professional can help you find the best match
Where have you lived for the last 2 years? Lenders are required to document where you have lived for the last two years, if you rented and to document rental payment history. Having the appropriate contact information will make the loan process go smoothly.
Do you have enough money? There are expenses associated with every purchase that need to be planned for. Depending on the program these may include: down payments, closing costs and, prepayments of escrows. Depending on the program, the funds required need to come from an acceptable source. These can include such things as checking accounts, saving accounts, retirement accounts, gifts, grants, down payment or closing cost assistance programs, and seller concessions.