Could You Qualify For A Mortgage?
Mortgages can be extremely complex and stressful, especially in the midst of Colorado’s red-hot housing market. Whether you are a first-time home buyer, an investor, or a real estate agent, staying up to date on the changing landscape of home loans is difficult. At Local Mortgage Inc., we are here to help you get the most out of the mortgage process.
Today’s blog will give a basic overview of whether you could qualify for a mortgage. You might be able to qualify even if you didn’t think you could, so read on and see if we can help out!
Credit is crucial to qualifying for a mortgage at all, let alone securing one at a low interest rate. Luckily, the minimum credit score required by the Federal Housing Administration for a loan with a 10% down payment is only 500. To take advantage of the lowest down payment allowed, you need a slightly higher credit score of 580.
Most lenders want to see a minimum credit score of 620 to approve mortgages. So, a fairly good credit score is required to secure most mortgages.
If you don’t know your credit score, then the first step in determining whether you qualify for a mortgage is getting a credit report. After you receive the report and know your score, you can see whether your credit meets the basic criteria above for qualifying for a mortgage. If your score exceeds 620, you are well on your way to qualifying.
Your credit report might show a score that is lower than you expected. There is no need to panic if that is the case. You can begin to take steps toward improving the score right away, but it may take a little longer to get into position to qualify for a mortgage.
Some simple steps you can take to boost your credit score include starting to pay back any current debt, managing credit cards responsibly, and setting up reminders to yourself for payment deadlines. More steps can be found elsewhere online, but reducing the amount of debt you currently owe and making payments on time are two of the simplest ways to improve your credit score.
Qualifying for a home mortgage also depends greatly on your current debt-to-income ratio. This ratio tells lenders how much of your debt is covered by your current earnings. To calculate your debt-to-income ratio, divide your current total debt by your current income.
This ratio can affect your credit score, but lenders tend to look at the ratio on its own to paint a better picture of your current financial situation. You may not qualify for a mortgage if your current level of debt far exceeds the amount you make, but your chances improve greatly if you can handle the increased debt of a mortgage.
Down Payment and Other Factors
To qualify for a mortgage, having funds for a down payment is crucial. As mentioned previously, if you have a credit score of 580 or higher, then you can qualify for a mortgage with the lowest down payment allowed by the FHA. That lower limit on down payments is currently set at 3.5% of the mortgage amount. That considered, Veterans can qualify for a mortgage with little to no down payments through VA Loans.
The more money you can contribute to a down payment, the more likely you are to qualify for a mortgage. A higher down payment can greatly reduce the monthly payments associated with a mortgage and ultimately make it easier to take on. Try our mortgage payment calculator to see how your down payment can affect your monthly payment.
When determining if you qualify for a mortgage, lenders will also take other factors into account. Some of these factors include the value of the house you are attempting to purchase, the amount of property tax that will accompany the house, and the cost of annual home insurance. All of these factors will help lenders determine if you can handle the extra monthly expenses of a mortgage.
Finding a mortgage that fits your needs is simpler than some people realize. Meeting the criteria outlined here means you are currently in good position to qualify for a mortgage.
The Right Mortgage Product for You
In some sense, there is a home loan out there for everyone. While your credit history, income to debt ratio, and down payment are crucial, a negative outlook on any of these fronts can be supplemented by a positive outlook on the other two and a different mortgage product. The question becomes what you think you can handle and how much home loan debt you feel comfortable taking on.
We also created easy-to-use mortgage calculators for you to determine possible monthly payments or to compare your buying and renting options. No matter what part of the mortgage process you find yourself in, these calculators can help you get a better idea of what product you need to responsibly get into the home of your dreams. They can also be great for real estate agents to get a quick picture of what is best for their customers.
Remember, the mortgage experts at Local Mortgage Inc. are here to help you get the right mortgage. You can apply for a mortgage online if you think you’re ready, check current mortgage rates, or contact us for more information. We are ready to partner with you!