How to Qualify for a Mortgage?

Posted On December 21, 2021

Assessing your financial situation before buying a house is a significant precaution. Buying a house is a pretty big deal and you have to be well-prepared to get through the entire process successfully. Lenders have a checklist of various factors to verify if you are eligible for a mortgage or not.

Different lenders have varied policies for checking out if you are a credit-worthy candidate for their loan. While qualifying for a mortgage is a long process, it still comes down to some basic points which we will see in this article.

Income, debts, assets, as well as a good credit score, are a few of the crucial components that must reflect positively to qualify for a mortgage. If you are looking for a house for sale or want to find your home worth, then check out https://savemax.com.  But first, let us understand the basics so that you are aware of the different components.

Income Requirements

The total income of your household is the first and most important thing that lenders verify. They need to be assured about your capability to pay the mortgage regularly and that you have a stable, steady source of income. Apart from the mortgage, your income should be able to support other bills, including utility expenses, credit cards or any other financial obligations.

Moreover, the maximum amount of loan you can qualify is directly proportional to your income. Generally speaking, you can afford semi-detached houses, a townhouse, or a detached house that is 4 or 4.5 times your pre-tax income. Additionally, if you have other sources of income, you can use them for mortgage qualification as well. Ensure that the records state a consistent flow of income from these sources. 

If you are planning to buy a house, we offer free consultation with regards to your needs, fill out the form below and one of our experts will get in touch with you.

Credit Scores

Your credit score is a crucial factor that indicates if you pay your bills on time or not. Your record of paying bills regularly for at least the previous two years must be excellent. If you are just making the minimum payments and have high amounts due on credit cards, it will show you in a negative light. So, before looking at “home for sell’ and “house for sell’ listings, it is best to get your credit reports. Check for any discrepancies that are affecting your score. If the report is showing a very low credit score, you will need to clean your credit and raise your scores.

What makes credit scores so important when looking for a home for sale? Lenders need to establish if you are a reliable borrower and you have a proven track record of paying the bills. You do not need to have a perfect credit score. Try to maintain a score of 650 or above, to enhance your chances of qualifying for a mortgage. People with high credit scores can easily negotiate and get the lowest interest rates.

Down Payment

Homebuyers have to verify that they have money for the down payment. For instance, you may need 5% of the total cost of the house as a down payment. Other than this, you will also have to take into account the closing costs that include property inspector fees, lawyer, taxes. There are quite a few options such as townhouses, condos, apartments, detached houses, or semi-detached houses. Usually, semi-detached properties cost less than detached houses, and potential buyers consider buying them for this reason. You can also have a look at detached, and much more. The size and type of property you go in for, is also important houses and other properties on https://savemax.com/.

The requirements of equity depend on various factors. The size and type of property you are going to buy, the purpose behind buying the property, your income, and your credit score – all these determine the down payment as well. Some lenders also offer zero down payment options to people with outstanding credit scores, with additional conditions.

Debt to Income Ratio

Just looking at your sources of income is not enough for a mortage. The lenders need to ensure that you can manage your living costs along with the mortgage payments. The debt to income ratio illustrates how you spend your income on utility bills as well as prevailing debts. In this verification, only those things that do not alter, are taken into account.

It is possible to include student loans, credit card minimums and your car EMI’s. Your entertainment expenses and other types of costs do not come under this category. Usually, lenders ask for a 50% or less debt to income ratio.

Assets

The inclusion of all your assets is essential while qualifying for a mortgage. Your net worth is an important factor for your lenders, so they can calculate what your fiscal worth is apart from your income. The net worth of a homebuyer can be ascertained by deducting total debts from the value of assets. This gives a clear idea to the lender of how much money you have.

Moreover, they will need proof that you can pay the mortgage, in case of financial emergencies. Such factors are important to determine that you can pay, even if you lose your job in the future. Lenders require a backup plan for all worst-case scenarios.  You can easily calculate your home worth on Save Max. and see what it costs.

Final Words

These were some points that you should keep in mind, before applying for a mortgage. The process is definitely lengthy, but it will be worth it once you get the approval. Get all your documents ready, maintain your credit score and improve on these points to get a mortgage at lower interest rates. Once you have pre-approved mortgage, you can start looking at listings of house for sell or a home for sell at https://savemax.com