Your Dream House Awaits: How to Get a Mortgage
What Steps Should You Take?
The pre-approval of a home loan starts with a good bank relationship and culminates in a statement of buying power. Buying a home is a complex process. Sellers take those buyers with bank loan sign-off more seriously than other buyers. The prospective buyer automatically has credible negotiating power with sellers.
The pre-approval process is based on information such as the buyer’s salary, credit history, and total financial picture. Unlike pre-qualification, the statement of buying power is considered a reliable barometer of the prospective homeowner’s ability to qualify for a home loan.
Interview Two Lenders
A loan officer typically initiates the qualification process with the prospective buyer. A face-to-face meeting, phone interview, or online chat may be used to discuss the prospect’s goal of buying a home. Many prospective homeowners like the idea of meeting with mortgage officers or representatives in person. Consider interviewing two mortgage lenders to gather information about loan qualifications and the requirements needed to qualify.
The prospective lender analyzes a variety of factors in the mortgage loan process. Conditions and loan terms may vary by market, lender, and the borrower’s financial situation. Typically, the lender analyzes salary and stability of employment, debt-to-income ratio (the buyer’s current debt load relative to income sources), his or her FICO credit score and profile, and total financial assets.
Not all prospective buyers receive high marks in all categories. However, if the buyer has a minimum 20 percent of purchase price for the down-payment and a good credit score, some lenders will qualify the borrower and provide loan pre-approval.
The prospective buyer’s front-end ratio, also known as the DTI ratio, should be 28 percent to 31 percent. Monthly financial obligations, referred to as the back-end ratio, should be no more than 36 percent. However, some lenders accept borrowers with higher back-end ratios.
Most lenders require a FICO credit score of at least 630. Borrowers with lower credit scores should have higher down-payment funds. The borrower’s additional down-payment lowers the mortgage underwriter’s risk. Typical down-payments can be as low as three percent to 30 percent.
Buying a home requires complete financial disclosure. Provide the lender with current salary and asset details. The lender usually provides the required paperwork. Most lenders ask for at least one month’s paycheck stubs, the last two years’ W2 forms and tax returns, the past three months’ investment or broker account statements, two months of bank statements, and business licenses or P&L statements for self-employed persons.
The process of home loan qualification requires many steps. Prepare to purchase a home by checking credit reports from Experian, TransUnion, and Equifax. Assemble required documents before meeting with prospective lenders. Finally, prepare to enjoy a new home and all of the advantages of home ownership.