Many people ask themselves this question every day, here's how you can know what loan officers look at in order to qualify borrowers to purchase a home.
*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Is buying a home right for me?
Many people wonder if buying a home is right for them, especially in a rising market with inflated pricing and high interest rates. Buying a home is one of the most important decisions in a person's life, and now is as great as a time as ever to consider putting a roof over your head that you can be proud of.
Can I qualify for a large enough loan in this market?
Let me assure you, that you probably qualify for more than you think you do.
What do Loan Officers look at when qualifying borrowers for a Mortgage?
Credit History:
Credit history and credit scores are a major player in the decision making process for loan officers. How has my borrower shown in the past that they've handled credit and financing situations? Have they made their payments on time? Are they trustworthy? Are they able to responsibly handle a home loan based off of the information that I have been given? Thankfully, there are multiple loan products that can fit the needs of borrower's with different credit scores.
When looking at a conventional loan*, mortgage loan officers will look for credit scores of 740 or higher. It is possible for borrowers to qualify for a conventional mortgage with a credit score as low as 620, but the monthly payments will be higher in order for lenders to mitigate risk.
FHA loans* are more lenient when it comes to qualifying borrowers with lower credit scores. Loan officers will accept a minimum 580 credit score in order to qualify a borrower who can make a 3.5% down payment. According to the FHA website, "If your credit score is below 580, however, you aren't necessarily excluded from FHA loan eligibility. Applicants with lower credit scores will have to put down a 10 percent down payment if they want to qualify for a loan."
USDA loans* don't have a fixed credit score requirement, but according to the USDA website, most lenders will accept a score of 640 and higher.
VA loans* don't have a minimum credit requirement, but according to vetransunited.com, most lenders will set credit score requirements to qualify a VA borrower.
Income and Down Payment:
Conventional loans* require a 3% down payment, while FHA loans* require at least a 3.5% down payment.
Utah Housing loans* are a good option for first time homebuyers with not a lot of money to put down immediately. It is considered an FHA loan, but Utah Housing will give you a second loan to cover the 3.5% down payment.
VA loans* and USDA loans* don't have a down payment requirement.
Loan officers will receive verifications of employment as well as review W2's, 1099's, K1's, and other necessary tax forms in order to verify the income a borrower receives. The income that the Loan Officer and their Processor verifies will be used during the loan process.
LTV and DTI ratio's:
Another huge factor in qualifying a borrower is their LTV (Loan to Value) and DTI (Debt to Income) ratios.
Loan to Value is calculated by taking the loan amount and dividing it by the purchase price. (ex: $700,000 loan amount / $750,000 purchase price = 93.3% LTV).
Debt to Income is qualified by taking a borrower's expenses, and dividing them by a borrower's income. (ex: $150 monthly car payment + $150 monthly student loan payment = $300 / $3,000 monthly income = 10% DTI).
Conventional loans* will accept a 45% DTI, and FHA loans* will accept as high as 56.9% DTI in most situations.
Conclusion:
You probably qualify for more of a loan than you think you do. This is a snapshot of some of the things a loan officer will review in order to qualify you. Don't be afraid to reach out and we can chat about different loan options, and the route we'll take to help you get into the home of your dreams.
*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Momentum Loans NMLS #1606597
Brayden Ramsay NMLS #1997195
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