Buying a home is an exciting and important milestone in the lives of many people. But it is also huge upfront investments and huge commitments over time… You may not know if you are eligible for a mortgage due to concerns about income and credit history or your ability to make a down payment. But don’t let doubts stop you from investigating. There are many steps you can take to determine your eligibility and improve your eligibility if you haven’t already.
The great thing about preparing for a mortgage is that you can find out if you are eligible for a loan before you put in any money or sign any loan documents, in a process called prequalification. The lender looks at your financial picture (your income, expenses, credit score) through their system to see how much of the mortgage you can actually afford and if you really qualify for it. You can then pass this pre-qualification letter to the lenders to inform them that your financing is suitable.
“Prequalification can help you understand how much housing you can afford and can also help you take you more seriously by agents when submitting offers,” said Brian Walsh, senior manager and CFP at SoFi.
Rate (and improve) your credit score
“Before moving on to home loans, it is important to take a look at your credit rating. Ideally, you need to have a minimum of 620 FICO points to qualify for a regular mortgage, ”said Tyler Forte, co-founder and CEO of Felix Homes.
If your score is lower than you would like, Andrina Valdez, COO of Cornerstone Home Lending Inc., said: “It’s still a good idea to improve your credit. A healthier credit rating could qualify you for a lower mortgage interest rate, potentially lowering the amount you pay for your monthly mortgage. ” You can improve your credit rating by “lowering the DTI, or debt-to-income ratio,” Valdez added. “Ideal DTI should be below 36%.”
This could mean paying off a credit card or making larger payments on existing debt.
Full and partial payments: What is best for your credit rating?
Find a lender who works with buyers for the first time
If this is your first home buying experience, you want to work with a lender who is experienced with your situation because it is different and requires patience to help you through the process.
“Ask your loan officer directly and read reviews to confirm that new buyers have had a good experience with a particular lender,” Valdez said.
Consider an FHA, USDA or VA loan
There are a number of loan types that are more targeted at people who do not meet all the requirements for conventional loans. You can qualify for an FHA loan, a home loan secured by the Federal Housing Administration, Forte said. “It is designed for borrowers who do not meet the standards of regular lenders.”
The downside is that an FHA loan can have monthly payments as FHA loans require mortgage insurance regardless of the amount of the down payment, according to Nick Shah, CEO of Home.LLC.
In addition, low-income families seeking housing in rural areas may be eligible for a USDA loan administered by USDA. Veterans, military personnel and spouses of deceased military personnel should consider applying for a VA loan. “This is great if you have military experience and need help getting back on your feet and have little savings for a down payment,” Shah said.
Look for loans that do not require a 20% down payment
While many loans require you to set aside 20% in order to get a home loan, other loans, such as “qualifying loans” (the ones that fall under Fannie Mae and Freddie Mac’s recommendations), can be subject to a decline of as little as 5%. according to Shah. …
You can pay as little as 3.5% with an FHA loan, and even less with a regular loan – as little as 3%. That is, if you have a credit rating of 620 or higher. However, nothing beats a VA loan with which you can buy a home with no money.
While a 20% down payment often removes commissions and lowers monthly mortgage payments, this is not the only way to buy a home. There are also good reasons to keep liquid capital for things like home renovations and having a backup fund, Shah said.
Look for a collaborator
If the problem with getting a mortgage boils down to a low credit rating or insufficient income, but you know you are ready to pay back in the future, consider getting a loan co-author with you. The lender will review the co-owner’s income and credit history along with yours. You just want to make sure that your co-signer has a solid work history, reliable income, and an excellent credit history. Most importantly, you trust them.
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Last update: Jul 30, 2021
This article first appeared on GOBankingRates.com: 6 Ways To Get A Mortgage Even If You Believe You Are Not Eligible