Are you ready to apply for a Mortgage?
If you’ve been thinking about buying a home but have hesitated because you don’t know what’s required to apply for a mortgage and ultimately qualify for a loan, this article is for you! Knowing this information can help us determine which of our numerous loan programs is best for you:
- Your gross monthly income
- The sum of your monthly debts (auto loans, credit card minimum payments, student loans, etc)
- Your credit score
- Any credit issues you’ve experienced over the last 4 years
- How much money you would like to put towards the purchase
- How long do you plan to live in the home
1) Your monthly income and debts
The first step in preparing to apply for a mortgage is to document your gross monthly income and debt payments. To get approved, you will need to provide at least two paycheck stubs so make sure to gather those.
If you’re self-employed or have variable income, know that the underwriting process will require more information to validate your income. To safeguard that our pre-qualification is accurate, we will ask for the last two years of tax returns to ensure that the income we utilize is validated. Doing this level of due-diligence upfront removes potential pitfalls later in the process.
Getting approved for your mortgage requires that your ratio of debt versus income meets certain ratios. Large debt payments (like vehicle loans or large student loan payments) will limit the size of the mortgage approval you can get. If possible, pay these loans off or, at the very least, avoid taking on any new loan payments.
2) Obtain your credit score
Before applying for a mortgage, obtain both your credit score and your credit history. You can get this for FREE once every 12 months. After receiving your report, verify there are no errors.
With regard to your credit score, we have the capability to finance loans down to a 500 FICO score. Just know that the lower the score, the more requirements there are to get approved. Ideally your score would be a 620 or higher. Loans in this category require less down payment and allow for more buying power.
3) Determine how much you’d like to put towards the purchase
The amount of money you’ll need to purchase a home is made up of 3 items.
First is the Down Payment. The required down payment is dependent on the specific loan program requirement. The down payment is calculated as a percentage of the purchase price. This percentage can range from zero to 20% depending on program and credit score.
The second is Closing Costs. Closing costs are the fees associated with underwriting, processing, and closing your loan. It also covers taxes and fees to the state and county. Lastly, it includes title company fees to ensure the home you’re purchasing has no other claims against it.
The third is Pre-Paid expenses. When you get a mortgage with us, we will establish an escrow account on your behalf. You will pre-pay your first year of home owner’s insurance and then fund your escrow account with another, approximately, 3 months of both real estate taxes and home owner’s insurance. When you make your monthly mortgage payment, it will include a prorated cost of taxes and insurance. When your insurance and taxes are due, the escrow account will make the payment on your behalf.
Note that you can negotiate for the seller to pay some of your Closing Costs and Pre-Paid expenses on your behalf. How much they can pay is dependent on what the loan program allows and what you can negotiate.
4) Think about how long you plan to live in the home
We have numerous loan programs available to our borrowers. We also have the capability to lower your interest rate for an upfront fee. Knowing how long you plan to live in the new home will allow us to calculate the best business case for your scenario.
I hope this article helped to demystify what is required to apply for a mortgage. If you’re ready to see what you qualify for, you could complete an online application in approximately 15 minutes. Go to www.ApplyToday.Loan now to start!
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