QUALIFYING FOR A MORTAGE LOAN

If you're new to real estate you might be asking, "What are the qualifications to buy a house?"

Well, there are many ways to buy a home. One way is to make a cash purchase. Give the seller the lump sum price he's asking for his home and now you own it. If you don't have the bank account to purchase $220k - $280k of real estate right off the bat, don't worry.

The most common way people buy a home is by financing. They obtain a mortgage loan to buy the home and pay a monthly mortgage payment, usually over a 30 year term. "Were do I get such a loan?" you ask. You obtain a mortgage loan from a bank, mortgage broker, mortgage lender, or any other financial institution willing to lend you money to buy a house.

If you don't have a lender contact us to refer you to a quality lender that will work with you every step of the way through the buying process.

After you find a lender to work with they will ask you for many of your personal documents and paperwork in order to crunch the numbers and see if you qualify. Any co-signers that might be helping you make the purchase will also have to provide the required documents.

These documents may include:

  • Recent pay stubs

  • Two years’ worth of W-2 statements

  • Bank, investing and retirement statements

  • For self-employment, 1099 or rental income, the last two years of federal tax returns

  • For a VA Loan, a copy of your DD-214 for veterans or a statement of service letter signed by your commanding officer for active military.

There are many factors that affect your ability to qualify but the big four are:

CASH SAVINGS

You need enough money in the bank to pay for a down-payment and cover any possible closing costs. If you qualify for a government-backed loan, you can put down as low as 3.5% on an FHA Loan and as low as 0% with a VA Loan. If you go with a conventional loan the down-payment amount can be worked out between you and your lender. Most look to put down 20% because it allows the to avoid paying mortgage insurance.

Keep in mind, you also need enough money to cover any closing costs debits you might have to close the transaction. Expect your side of the closing costs to be around 2 to 5 percent of the price of the home.

GOOD CREDIT HISTORY

To get the best pricing on loans you must have at least a 700 credit score. For the most part, the better your credit score the better interest rate you get on your loan. If you're young you might not even have a credit score. You have to start establishing credit.

LOW DEBT

The lower your debt the better chance of qualifying. Any credit card debt and car payments will affect your ability to qualify. If you're in a lot of debt such, as student debt, it can totally kill your qualifying ability, even if you bring on a co-signer.

EMPLOYMENT INCOME

You have some sort of reliable source of income, whether it's from being self-employed or working a job. Lenders will ask for recent pay stubs and two years’ worth of W-2 statements. They also look at your work history and require you have two years of the same work experience. Lenders have to be certain you are able to make your mortgage payments and not default on the loan.

There you have it. If you are looking to buy and think you might meet the qualifications, contact us and we will set you up with a reputable lender. If you're not quite there yet, work on getting your house in order not just to invest in real estate but to help you get a head in life.

 

Items Needed for Pre-Approval