5 Criteria for a Mortgage Approval
So you want to get approved for a mortgage? What are some criteria to getting approved? I have put together 5 mortgage principles for getting approved for a mortgage. My 5 mortgage principles are cash, credit, stability, income, and property. If you can analyze these 5 criteria for yourself and can check off each one off then you are very likely to be approved for a mortgage. Let’s take a closer look at each principle and why they are so important.
Cash (In Bank Account)
When purchasing a home you are going to need cash not only for the down payment but also closing costs. Closing costs typically range from 2-5% of the purchase price and are costs associated with the financing of the mortgage. Closing costs included but are not limited to lender title insurance, owners title insurance, appraisal, and taxes just to name a few.
Now if you are short coming up with cash there are down payment assistance programs that can assist you with this and as noted in an earlier blog, seller contributions can help you get into the home for less. Seller contributions is when the seller helps pay for closing cost. The third option would be for you to have a family gift you the funds for closing. Gift funds are a great way for you to get into your dream home with little to know money out of pocket.
Your credit score is a number determined by the Fair Isaac Corporation (FICO). “The best indicator for future behavior is… past behavior”. A credit report simply put, is a number based off of our prior credit history. First question is do you have a qualifying credit score? If so, is it a high credit score? The better the credit score the better terms we can give you regards to interest rate, mortgage insurance, and the ease you go through underwriting (approval process).
If our credit score is on the lower end there are cheap and easy ways to improve your credit score. Sometimes something as easy as paying down the balance of our credit cards can bump our credit score to where they need to be in order to help you qualify for a mortgage.
Do you have a nice and steady work history with no gaps in employment? When applying for a mortgage we need 2 year history of work history. During the last 2 years were there any gaps in employment? If so, that is okay we would just need a reason for the job gap. If we are switching jobs, does the job pertain to the same field we were in previously?
Income plays a very important role because it determines our DTI (debt to income) ratio. The more money we make, means a lower DTI ratio is, which means we can afford more house. If we are a self-employed borrower we need 2 years tax returns to determine income. Our DTI ratio consists of the front end or housing ratio and our backend ratio. To find out more about DTI ratios and how they are calculated watch my video HERE.
Are we purchasing a primary residence, vacation home, or investment property? Depending on which one we are purchasing changes the amount of money we have to put down for and the interest rate of the loan. For FHA, VA, USDA financing is the property in safe, sanitary, and structurally sound condition? The roof has to be good condition, no peeling paint or missing floorboards, no holes in the wall, bathroom fixtures in place ect.
So these are the 5 “Golden Principles” for being approved for a mortgage. If you can mark off each of these 5 principles you are very likely to qualify for a mortgage. If you need help in how to improve your credit score or have any other questions about the loan process please give me a call or schedule an appointment with me.
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