If you are a first-time homebuyer, navigating through all the home buying process and everything to do with mortgages can seem overwhelming. If you have begun the mortgage shopping process, and are unsure as to what information you will need and if you’ll qualify, not to worry. Here is some information that will make the mortgage process seem like a much smoother drive.
When you are in the beginning stages of becoming qualified for a home mortgage, there are essentially three things that your lender, will look at to determine if you will be qualified for the loan.
#1: Income Verification:
When purchasing a home, any and all income from the homebuyer must be validated and confirmed by a mortgage underwriter in order to receive the loan. Income verification can be done using several types of documents, such as, a W-2 statement, your paycheck stubs, or income tax statements that show proof of income. The reason you would need these documents is because they usually will have to span a period of two years or more to show your history of your income. Income proof can also include such things like child support payments, income from Social Security Administration or disability payments. These additional monthly incomes can increase your potential to qualify for a home loan. Do not forget though, just like regular income, these payments must be validated by a mortgage underwriter to count.
#2 Debt-To-Income Ratio:
Another key factor that is taken into consideration when getting a home loan will be your debt-to-income ratio. What this means is, your lender looks at your total debt load as well as your monthly payments; such as credit card debt, car payments, any student loan debt and the new mortgage loan. If you have a high debt-to-income ratio i.e. greater than 45% you may be required to reduce your current debt before qualifying for certain loan programs. Lenders use gross income to determine debt-to-income ratios. Don’t worry, your qualified mortgage loan officer will explain which debt must be paid off before re-applying.
#3 Credit History:
The final consideration that lenders consider when determining whether you qualify for a home loan is your credit score and history. Your lender will be looking for a strong history of on-time payments for all of your debts as well as that you have an established credit score. One way you can prepare yourself with this information is by obtaining a free credit report from sources such as Equifax, Experian or TransUnion. This will benefit you because you are able to check that the information is accurate and up to date.
These are the three things that your lender will look at to determine if you will be qualified for the loan. When starting the process of getting a home loan, being prepared with the knowledge of what paper work is required, as well as having done a little background research can make the process simpler and a lot less stressful. Armed with this information, you will be able to get the loan that works best for you.
