Thinking of buying a home? If so, do you have a bunch of money saved up to pay cash for it? If not, then you’ll have to finance it with a mortgage. Qualifying for a mortgage is not rocket science but there are some pieces to put together. Once these pieces fit together you can get a mortgage.
How Do I Qualify For A Mortgage?
Mortgage loans are not as easy to get as they used to be before the big mortgage industry crash in 2007. However, the basics are still the basics and if you meet the basics then chances are you’ll have no problems qualifying for a mortgage. We’ll break these down a little more, but the basics to qualify are: decent credit, some provable credit history, not too much debt, some money in the bank, a job with provable income, and U.S. Citizenship or a Green Card.
Decent Credit
Decent – what does decent credit mean? Decent in this case means having a middle Credit Score of 550 or higher. If you have had some prior credit problems but are working on improving your credit score and you have had good credit for the past 12 months then you will have a shot at qualifying for an FHA mortgage. To get a conventional mortgage from Fannie Mae or Freddie Mac you will need to have a middle credit score of 620 or higher. Review Credit Scores 101 for more information on credit scores.
Some Provable Credit History
There are some people who just do not have they type of credit account that shows up on their credit report. Most of the time, this is the situation of a late teenager or early 20-something where you have not had to get credit. You may also find yourself not having any open credit lines in the past few years. If you find yourself in this case there are a few mortgage programs that allow for this situation; FHA Home Loans, Fannie Mae My Community Mortgage, and Freddie Mac’s Home Possible.
In order to qualify for these mortgage programs you will have to be able to prove that you do have some credit history. Some sources for this are your rent, cell phone bill, utility bills, Chapter 13 bankruptcy trustee payments, or other non institutional credit accounts you may have. The best way to prove any of these payments is either with cancelled checks that you have written or by getting a payment record verification from the creditor that you have been paying.
Not Too Much Debt
The magic number here is having a debt to income ratio less than 65%. Read more information on how to calculate your debt to income ratio. This number seems high which is probably is, but automated underwriting by Fannie Mae and Freddie Mac have allowances for approving loans with debt ratios that reach 65%. Although the requirements for these loans have tightened up considerably if all the pieces come together is it possible to get approved with this kind of debt load.
More typically in order to qualify for FHA and most Fannie Mae and Freddie Mac programs you want to shoot for having a debt to income ratio of less than 50% for automated approvals. If you are going to get an FHA mortgage and have had some past credit programs it is likely that you will have to get your mortgage application underwritten by a human underwriter. If this is the case, then you will definitely be held to 41% on your debt ratio.
If you have too much debt – get rid of it one account at a time or some other way to get qualified for a mortgage.
Some Money In The Bank
How’s that for a qualification: some money in the bank? FHA only requires that you have $100 in the bank after your mortgage is complete. That is not a lot of money. Furthermore, FHA allows for all of the money required down payment and closing costs to come in the form of a gift. This gift can come a family member or from a down payment assistance program like AmeriDream or Nehemiah.
A Job With Provable Income Is Required
In most cases, unless you are putting at least 30% down you will have to prove your income with either W2’s and pay stubs or your tax returns. Back prior to 2007 if you had good credit you could virtually get a mortgage based on just your credit scores. Since 2007 those programs have gone by the wayside. The mortgage industry is back to making people prove what they say about their income and assets.
If you work and get a pay check and W2, expect to show at least 30 days worth of income and your most recent W2 when you apply for your mortgage. If you are self employed or work in some commissioned sales job be prepared to show at least your most recent Federal IRS Tax Return; most likely you will have to show your last two years.
Typically to qualify for a mortgage you will want to have been working for at least 1 year with no unexplainable gaps. If you have been working for less than a year there are programs that allow for this, but you still must be able to logically explain your situation. A good example is a college student who graduated from college in May and got a job in July. This person can show their transcript for graduating in May and it reasonable to think that it took a few months to find a job. In any case, you will have to show at least 30 days worth of income to qualify.
U.S. Citizenship or a Green Card
The bottom line here is that if are a lawful permanent or non permanent resident of the U.S. you should be able to get a mortgage. You will need an IRS Individual Taxpayer Identification Number if you do not have a social security card. You may also need to have a Permanent Resident Card – Green Card which authorizes you to work in the U.S. You may also have a working Visa or a Non Immigrant Visa with an Entry Stamp. You may also be able show your Passport with a I-551 stamp which shows temporary evidence of lawful admission into the U.S. for permanent residence.
These items are the basics of how to qualify fora mortgage. If you find yourself having met most if not all of these items then you have a good shot at getting a mortgage.
