Qualifying for A Home Loan

Whether you’re in a  buyer’s or a seller’s market, you will want to purchase a home when you find the right one. But, it’s not always that simple. There are many factors that determine whether you’ll be able to purchase a home, as well as the terms of your mortgage. Understanding if you qualify for a home loan is one of the first steps to making the home buying process easier.

For the majority of people, buying a home means getting a mortgage. According to the National Association of Realtors, 93% of first-time home buyers finance their home, while 87% of repeat buyers do. 

Determining if you qualify to purchase a home and home mortgage loan pricing is determined by the lender in two ways: debt to income ratio and FICO Credit Score. Both methods are based on the creditworthiness of the borrower. Your down payment, or the amount of the existing equity you have in a refinance, has a major effect on the interest rate you can get as well. 

Debt - to - income Ratio (DTI) represents the percentage of income that goes towards debt repayments each month. You can calculate your DTI by adding up all of your monthly debt payments and dividing that figure by your gross income each month. The lower the number is, the better for meeting qualifications to buy a home. 

Your FICO Credit Score is often the most important factor lenders consider when qualifying a purchaser for a home loan. Your credit score indicates to lenders how likely you are to repay your loan. If you have no credit history or a bad credit score, it will be very difficult to qualify for a mortgage. The minimum credit score required to qualify for a mortgage will vary depending on the type of mortgage loan you are seeking. For example, the Federal Housing Agency (FHA) offers financing options to borrowers with a credit score as low as 500, however, most lenders have a requirement of at least a 620. 

Be sure to check your credit score before applying for a home loan. This can help you get a better idea of whether you meet lender’s requirements to buy a home and give you insight on interest rates you’re likely to pay for a mortgage. 

Key Takeaways:

• There are several key requirements to buy a house to be aware of before looking for a mortgage.

• Some of the most important requirements for buying a home include a good credit score, and an acceptable debt-to-income ratio.

• Be aware of your credit score before beginning the home buying process.