This is a guest post by Mortgage Loan Place.
Right now is a prime time to purchase a home. House prices are incredibly affordable, thanks in part to the still-recovering economy. Sellers are eager to negotiate, and there are plenty of homes on the market to choose from.
If you’re confused about the process of actually paying for that new house, you’re not alone. Mortgages can be confounding. Sometimes it’s hard to determine how much money you’ll qualify for or what kind of house you can afford.
How Mortgage Brokers See You
Most mortgage brokers or lenders have a set formula they use to qualify potential borrowers for a loan. Here are three things you need to know.
1) Credit Score
It’s crucial that you both understand your credit score and know what your score is before you go into the qualification process. Made up of your payment histories from credit cards, student loans, home loans, and car loans (basically, any debt you’ve acquired), the credit score tells lenders how likely you are to repay your mortgage. Scores range from 350 to 850, and most borrowers have a score somewhere around 730. Those with scores less than 650 may find it very difficult to secure a home loan at all, and buyers with scores between 650 and 730 may have to settle for slightly higher interest rates.
2) Debt to income ratio
Your debt to income ratio will also be considered when you attempt to qualify for your new loan. Most lenders like to see a ratio of no more than 30-40% between your monthly loan payment and your monthly income, with your mortgage making up no more than 30% and other debt payments consisting of the remaining 10% at most.
3) Other factors
Lenders will also look at your income, job stability, the property you want to buy (if you’ve selected one), and the amount of your down payment, which is generally expected to be around 20% of the purchase price of your new home.
If you’re concerned about qualifying for a traditional loan product with the criteria mentioned above, consider investigating a government backed loan. These mortgage products, like USDA loans, FHA loans (available for first time homebuyers), and VA loans (available to veterans and their families), typically provide mortgages with lower down payment requirements, competitive interest rates, and reduced credit standards as compared to traditional loan programs.
This article was written by the folks at Mortgage Loan Place. MLP specializes in educating consumers about the benefits of government loan programs, such as VA, USDA, or FHA home loans.