How To Qualify For A Home Mortgage
The Lowdown on Traditional Mortgages
So, you’re thinking about getting a traditional mortgage, huh? Well, first things first, let’s get what it means out of the way. Basically, it’s a home loan you can get from any regular lender. It’s called “traditional” to differentiate it from those government-backed ones (like FHA or VA). A big perk? These usually come with lower interest rates!
Mostly, you’d want to drop 20% as a down payment, but if you’ve got a shiny credit history, some lenders might be cool with just 3%. And the sweet part? Most of these have fixed rates – so, no nasty surprises with your monthly payments!
Peek at Your Credit
Before diving in, make sure you check out your credit score. Think of it like your financial report card. Lenders will give it a look to see if you’re the kind of person who pays back their debts. Most of them like to see a score of at least 620. Not there yet? Time for some credit repair!
Qualifying for a Mortgage: The Basics
Alright, so when you’re gunning for a mortgage, there are a few things to keep in mind:
- Income: Lenders wanna know you’ve got a steady cash flow. Recent job loss or pay cut? That’s a bit of a red flag.
- Debt-to-Income Ratio (DTI): Basically, it’s a comparison of your monthly earnings and your monthly debts. Lower debt? Better chances.
- Financial Responsibility: Paying back previous loans on time and not missing credit card payments? Gold star for you!
Do the DTI Math
When it comes to qualifying, your DTI is a biggie. To crunch those numbers, take your total monthly income, subtract things like taxes and insurance, then divide by your gross income (pre-taxes). Bam, that’s your DTI!
Stash Some Cash for Downpayment
Aim to save at least 20% for the downpayment. Seems tough? Start small, and be smart about your savings. Every little bit helps!
Scout for Mortgage Brokers
When it’s mortgage-hunting time, a good broker is like your treasure map. They know the scene and can guide you to the best deals. Just make sure they’re legit (state-certified and all) and have a good track record.
Pick Your Mortgage Flavor
There’s more than one type of traditional mortgage:
- Fixed Rate Mortgage (FRM): Same monthly payment for the whole ride, usually 15 or 30 years.
- Adjustable Rate Mortgage (ARM): Starts with a lower interest rate, but can change. Perfect if you’re betting on a brighter financial future.
Hold Off on Big Buys
Eyeing a brand-new car or a grand vacation? Hold that thought! Big purchases before sealing the deal can mess with your approval chances.
Get That Pre-Approval
Basically, this is the lender saying, “Hey, looks like you might be good for the loan.” It gives you an idea of how much house you can afford and shows sellers you’re serious.
Appraisal and Underwriting
Pre-approved doesn’t mean you’ve clinched it. You’ve still got to wait for the lender’s final say, which usually comes in 2-4 weeks. The lender will need to order an appraisal for primary residences or a broker price opinion for investment properties. If the appraisal comes back at an acceptable level (at or above the purchase price), then you’ll be on your way to final approval.
Wrap-Up
Traditional mortgages? They’re your everyday, most common home loans. To get one, you’ll need a decent credit score, a chunk of money for down payment, and a steady job. Thinking of diving in? Chat with your lender to see how you measure up!
