Qualifying for Your
Mortgage Loan

Lenders use specific criteria to qualify you for their mortgage products. What they may not tell you is that each lender sets its own criteria and rates. If one lender offers you too little money or unfavorable terms based on your qualifications, try again. You have nothing to lose. Here is what they look at and how mortgage lenders work.

The primary factors mortgage lenders consider when loaning money is a person’s income, credit worthiness, and stability. There are many ways to prove each of these areas. Although some lenders treat it as a science, others are more flexible.

Income Factors

Income is not always as simple as a regular paycheck. If you can prove that your alternative sources of income are scheduled to continue, they can sometimes be used towared your mortgage qualification. For instance, disability or social security income can be used to qualify.

In most cases you are not required to report any alimony and certain other sources of income, however, these sources of income can be used to increase your qualifying loan amount. (The payer of these is required to report these as an obligation.)

In another income scenario, you may be able to increase your mortgage qualification if you have been offered a raise in writing, even though it may not be effective yet.

Credit Worthiness Factors

When it comes to your credit worthiness, there are a few things to consider. Always be sure that your lender looks at all three credit bureaus up front. This can avoid surprises and it may help you qualify for more since mortgage lenders usually use the middle score.

Other considerations are: First, what is your credit score? Second, how is your payment history? Third, how recent is the information in your credit report.

First, consider your credit score. If your score is about 680 or higher you will probably be in good shape. Over 720 and you are often in great shape. Ask your lender what their cutoffs are and be careful about credit if you are close to a cutoff.

Some mortgage loan programs don’t even look at score so if you are new to credit, don’t despair. There are several types of loans available. There are loan programs for almost any situation.

Second, payment history is very important. Payment history can affect your mortgage qualification regardless of your strength in other areas. Worse than that, bankruptcies, judgments, or foreclosures can really impact your ability to get a mortgage for a year or two. The thing to remember is that the the later the payment and the more recent the lateness, the less your chance of qualifying for the mortgage.

If you fall into this category, contact Josh for details on credit repair and alternative mortgage loan programs available. Sometimes, mortgage lenders can offer very comparable monthly payments since alternative mortgage loan programs don’t usually charge private mortgage insurance (PMI). 

Third, how recent was the derogatory information added? The recency of your credit transactions and history determines how much your credit is impacted. So how long has it been since you have made a late payment?

Recency has a big impact whether your credit is good or bad. For instance, paying a car loan perfectly may not impact the lender’s decision much if it was over five years ago. An ongoing debt or recently paid off debt tends to be more favorable.

Fortunately, the derogatory history is also time sensitive. Even a bankruptcy or foreclosure may not stop you from getting a reasonable loan if it was more than two or three years ago. You probably don’t have to wait until it clears off of your history and maybe you shouldn’t wait. The benefits of home ownership are tremendous.

Stability Factors

Some people can prove more stability than others. Don’t let this stop you from trying to get into a house. Here are some secrets about proving your stability.

Job Stability Job stability is a key to most lenders. They like to see you in a job for at least two years. If you are new to a job, here are some questions to ask:

• Am I still in the same industry or job classification?
• Have I been employed consistently over the past several years?
• Have I maintained the same or increasing pay?

If you answer yes to several of these questions, you have a strong chance of qualifying.

Home Address Stability Home address stability is not as important, but still considered. Have you been in the same house or apartment two years or more? If not, can you explain a logical reason for each move? Often, a job transfers (particularly with the same company) can be used to explain a lot of moving. If you have only moved a few times your previous addresses may not even be an issue to the mortgage lender.

Credit Stability Believe it or not, how you handle credit and bills can show stability. Be sure to consistently pay your bills on time. If you have difficulty remembering to pay bills, ask your bank if it has an automatic bill paying service. Many times this service is free.

Educational Stability If you are a student about to enter the job market, there are programs for you too. Often, your consistency in school and sometimes your good grades can help you show stability. It may also indicate to the lender that you are bettering yourself and therefore mortgage lenders may assume you will experience increasing pay over the years.

Whether or not you want to purchase a more expensive home, you should try to qualify for the maximum amount possible. Higher qualifications can actually reduce the cost of your mortgage.

With consistency and a little hard work, you can qualify for a mortgage and purchase your ideal home.