Nashville Lifestyle Living | Monique Flores

Most people know that owning a house reward us with a ton of benefits. But, what a lot of people don't understand is what it takes to qualify for a home loan. Unfortunately, there's a lot of misinformation out there. We often hear things like, "banks just aren't lending money these days." Or "if you don't have 20% to put down on a home, you're out of luck." So, what's the truth about what you actually need to qualify for a mortgage? It boils down to four things: credit, equity, income and assets. 
 

CREDIT

One of the most important factors that mortgage underwriters will look at is your credit. Ironically, this may also be one of the most confusing aspects of any big financial decision. Since you're looking into buying a home, no doubt you checked your credit score recently. A healthy credit score is approximately 740 or higher, a poor score is 600 or lower and the current minimum to qualify for a home loan is approximately 620. The better your score, the more confidence lenders will have in you. So, they'll check your score, how quickly and reliably you make payments on other accounts, and your recent credit report in regards to rental/mortgage payments and large collections.
 
 

EQUITY/DOWN PAYMENT

Typically, your down payment will be 3.5% — 5% of the sale price. This allows you to qualify for an FHA loan, a mortgage issued by the Federal Housing Administration or a conventional mortgage that requires you to pay 5% — 10% of the sale price. These are great options for first-time buyers who don't have a large amount to put down. If you already own a home, your greatest asset (or obstacle) may be the amount of equity you have in your home. Home equity is the difference between how much the home is worth and how much you owe on the mortgage (or mortgages, if you have a home equity loan or line of credit. For example, if you bought your home for $250,000 and owe $200,000 you have $50,000 in home equity.
 
 

INCOME

The next thing lenders will look at is your financial outlook with the new mortgage. This is referred to as your Debt-to-Income ratio and it's essentially your fixed expenses compared to your gross monthly income (before taxes). Fixed expenses are made up of home loan payment, property taxes, homeowner's association dues, homeowner's insurance, car/student loans, credit cards and any other fixed payments that will show up on your credit report. Along with these taxes, expect mortgage underwriters to delve into the past two years of work to ensure you've got a steady paycheck.
 
 

ASSETS

The final aspect that goes into your home qualification is how liquid your funds are. Basically, lenders want to make sure you're not burying your money in the backyard or keeping it under your mattress! Mortgage underwriters will simply want to ensure they know where your funds are coming from: checking account, savings account or investments.