Getting a mortgage can be complicated, especially if you’ve never applied for one before. Here’s what you need to know to make it less intimidating. Read on for some insights about how the mortgage qualification process works:
Mortgage Qualification Demystified ~A mortgage qualification is a simple process, really. These are the primary items that your lender is going to look at when it comes to qualifying you:
– Credit history
– Job history
– Current base income
– Income potential
– Cash reserves
– Assets and investments
Let’s break each of these items down and discuss what lenders are looking for in an ideal candidate and how you can inch your way toward becoming that perfect borrower. Don’t worry, no one is a perfect borrower, but the better you are, the more likely you are to get the loan you want.
This one is kind of a no-brainer. Pay your bills on time, don’t take out more debt than you can reasonably repay, try to keep your revolving credit under about 30 percent of the limit (yes, that little, for real) and don’t close any credit lines that you happen to pay off. You’ll need them to help decrease your debt to credit limit ratio. And track your credit score using a reputable service.
Having a track record of being at the same company for a while, or in the same field, looks really good for you. This is not to say that you can’t change jobs, but try to limit it to the bare minimum in the three year period leading up to your mortgage application. The more stable you look to your lender, the happier they’re going to be.
Can you actually afford to buy a house? Are you swimming in debt? Are you using debt to pay your debt? Your future lender will be looking into it so you should do so first.
Current Base Income
Lenders really only look at your base income. They only want to use income they know will be there in a near-worst-case scenario. Obviously not having a job would be worse, but if your company needed to slash overtime and stop giving out bonuses, your bank wants to be sure you can still make the payment.
Mortgages are typically 15, 20 or 30 years in length. Because of this, banks want to know you’re going to be good for the long term. That’s why they poke into your job history and your income so deeply. Your potential to continue to remain employed and to make as much, if not more, money as you do right now is a great big checkmark in your plus column.
Cash reserves are whatever your personal money vault currently holds. That’s going to include your savings account and whatever amount of money tends to stay put in your checking account. If you haven’t been saving, now’s as good a time as any to examine your spending and make some little changes that will add up to big cash when it comes time to apply for a mortgage. Those cash reserves are great for so many things as a homeowner, even if you don’t end up needing them at the closing table.
Assets and Investments
The 401(k) is probably the most commonly overlooked investment that a large number of potential homeowners have available to them. Other investments would include things like stocks, bonds, futures, rental property, stakes in startups that are making money… Whatever you have, disclose it
There are all kinds of ways to win with mitigating factors, but it’s always easier if you don’t have to invoke them. The more you have to mitigate, the more you have to document and the longer it takes to get to the closing table. Best to come with your best face forward the first time.
Find the Mortgage You’re Dreaming Of…
Your first step is meeting with a lender who will get the process started. Great lenders know all there is to know about mortgages and what options are available to you. I’m happy to refer some fantastic, knowledgeable lenders to you if you’re in need.