There are actually four things mortgage lenders look at when deciding whether to grant you financing, and having a balance of each will score you better terms and make this process go smoother. Take a look.
4 Items that will Assure You Obtain a Mortgage
1. Steady Income
A consistent income that is poised to continue into the future is what lenders crave. If you have a gap in your employment during the last 24 months, for instance, that may be something that will need to be explained and documented. Lenders want assurance that the loan they are making is likely to perform well into the future, so having a stable income is critical. This means if you’re self-employed your earnings will be averaged over the past two years. Additionally, it means pay stubs and a verification of employment will be required if you are a W-2 employee.
2. Good Credit Scores
Additionally, your credit score typically should be at least 720 or better. (Not sure where you stand? You can view two of your credit scores, updated every Two weeks, at no cost on Credit.com.) That does not mean if your credit score is less than 720 that you can’t get a mortgage, but it does mean that your credit will probably be looked at a bit more closely (a 580 score will be the minimum needed currently). Perhaps you are utilizing a large part of your credit and your credit score is slightly lower due to credit card balances. Or perhaps you missed a payment here and there previously. No matter what the circumstances, know that anything 700 or higher is regarded as good when it comes to qualifying for financing.
3. Low Levels of Debt
In terms of debt, you would like your minimum payment liabilities to be very low in relationship to your monthly income – a target range is 10% or lower of your gross income. A mortgage payment can be a rather large portion of your earnings. By keeping your minimum payment obligations to 10% or lower, there ought to be enough room to fit in a mortgage payment. How much money you can borrow is a function of how that payment fits into your earnings together with your other monthly liabilities.
4. Assets
The optimal mortgage candidate will have a 720 credit rating, 20% down along with a healthy debt-to-income ratio at at least 36%. They will likely also have a good payment history and solid income. Know this: The more cash down you have, the lower your monthly mortgage payments.
Below is a snapshot of what home mortgage program may be appropriate for you according to these characteristics. (Note: Each scenario will be based upon a 30-year fixed-rate mortgage.)
Great credit score, say, of 720 or above, a small amount of cash for a down payment, high monthly payments, say, greater than 10% of your monthly income: Federal Housing Administration 30-year fixed rate.
Great credit score of 720 or above, a modest amount of cash for a down payment, really low monthly payments, e.g., 10% or below of your monthly income: Conventional loan 30-year fixed interest rate.
Credit score of 700, a sizable down payment, 20% plus settlement costs, minimum payments on liabilities worth over 10% of your monthly income: Conventional 30-year fixed interest rate.
Credit score of 620, a small down payment, payments below or above 10% of your monthly income: FHA 30-year fixed rate.
While there are additional programs available in the marketplace, these illustrations will give you an idea of what you might be looking at while balancing your credit, debt, income and asset picture.
You may want to consider changing any of these:
• Income – Higher or Lower
• Credit score – Higher or Lower
• Assets – Higher or Lower
• Debts – Higher or Lower
Any time you increase your credit, income or assets, that’s a very important thing that will assist you borrow more, and afford more. Debt is the only one of the four items where the target is to go lower by responsibly repaying obligations.
Nick & Cindy Davis work with several lenders here in the Tampa Bay and Surrounding Areas that can assist you with obtaining a mortgage for your home purchase. Knowing what you are qualified for before going and looking at a home is crucial. If you are ready to get started, give us a call at 813-300-7116 or simply click here and we will be touch.