How to Qualify for a Mortgage?

Congratulation! You have decided that is the year you are going to buy a home. There are questions to ask when preparing to apply for a mortgage loan. These will help you determine how to qualify for a mortgage. Be patient. Be persistent. While buying a home is an exciting life experience, it will take a bit of time and effort to get it done right.

What is my first step?

How to qualify for a mortgageBefore you even consider applying for a mortgage, you must get your finances and credit in order. Check your personal credit history, yourself. Most lender’s like to see a FICO score that is above at least 680, with 723 being average. FICO comes from the company’s original name, the Fair Isaac Co. It uses credit scores ranging between 300 to 850. The higher your score not only will you have a better chance at qualifying, but you will get better loan interest rates. Many factors make up your FICO score. Things such as credit payment history, percentages of credit limits used, bankruptcies, foreclosures, etc. There are many free credit reporting websites that you can check your scores.

Inquire with all three credit bureaus: TransUnion, Experian, and Equifax. There may be outdated or false information on your record. You have the right to dispute anything on your report. That process is quite simple. There are even Government Consumer Protection Agencies that will assist you.

How do I fix bad credit?

First, go through your report with a fine tooth comb. Mark off anything that you do not recognize and file a dispute. Many times, this can be done through the free services quickly and easily. Also, look at any credit cards that have high balances. Pay those down first, to at least 50 percent of the total limit. It may take 60-90 days, but it will be totally worth it once you decide to see a lender. The Federal Trade commission is also an excellent resource offering tons of tips to help you improve your credit scores.

Next, you need to figure out what you can afford. Be honest with yourself. The formula lenders use to determine how much a borrower could afford is about three times your gross annual income. This translated to monthly payments exceeding no more than 28% to 44% of the borrower’s monthly income. Nowadays this method may not always be reliable. It is more realistic to look at your entire budget and how much money there is for housing costs, then figure out a total loan amount on that. Remember you need to consider other costs such as property taxes, maintenance, insurance, HOA fees. These can significantly jack up your monthly payments.

What other factors do lenders consider?

Lenders will also factor in your debt ratios. Two debt-to-income ratios are considered. First, is the housing ratio sometimes called the “front-end ratio.” This your anticipated monthly house payment plus other costs of home ownership like HOA fees, etc. Divide that amount by your gross monthly income.

How to qualify for a mortgageThe other is the debt ratio or “back-end ratio.” so, take all your monthly debt payments such as credit cards, student loans, alimony, child support in addition to your housing expenses. Divide that by your gross income, too. As a result of the ratios, your monthly mortgage must not be more than 28 percent of your gross monthly income for the front ratio, and 36 percent for the back ratio. However, guidelines vary widely.

J.J. Fegan is here to help. Our knowledgeable team always up-to-date on all the latest trends and updates in the housing financial market. Need more information on how to qualify for a mortgage? We are dedicated to assisting you to purchase the home of your dreams. Contact us today for more information.




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