Home purchase is a very big deal, and preparing for this big step is an oft-misunderstood process that is in constant change. Just a couple of years ago, a buyer’s preparation was mostly left up to the buyers themselves. Yet after learning their lesson, the mortgage industry has locked down. It can definitely be frustrating for buyers, especially with so many screaming deals out there ripe for the taking. Yet by understanding what is expected of borrowers in today’s market, would-be buyers can prepare properly to be market players.
The 5 keys to mortgage approval:
1. THE DOWN PAYMENT
The down payment mostly depends on the type of loan one seeks, which is another element that deserves consideration before setting foot in a bank. While down payment requirements for conventional financing may be steep, other loan programs such as the FHA require much less down.
2. JOB HISTORY
This can differ a bit from lender to lender. Some wish to see two years at the same job, while others want to see steady work for a certain amount of time regardless of whether or not one has changed jobs. With so much employee turnover over the last couple of years, this constraint may be subject to change as the mortgage industry looks to bring more would-be buyers into the fold.
3. DEBT LOAD
Again subject to lender specifications, auxiliary debts such as student loans, credit cards and car loans are given increasing consideration by lenders. As a good rule of thumb these debts, in conjunction with the mortgage payment should not represent more than 45% of the total household income. Understanding this ratio is a good way for buyers to understand their purchase power.
4. CREDIT SCORE
Today, borrowers generally need a FICO score of 640 and up in order to qualify for conventional financing. Yet the higher the score, the most is possible with regards to competitive rates and programs. The credit score’s role in the loan approval process will be interest to follow as more “bounce back buyers” (buyers who previously lost their home via foreclosure or short sale) look to get back in the game.
Sadly, many buyers start by identifying the home they want, then head over to the bank. Then, in the time it takes them to get their ducks in a row, they lose out on the home that got them exciting about purchasing in the first place. Having handy pay stubs, account balances, and anything else that would help to verify one’s repayment ability can significantly expedite the approval process.
It is important to remember that that mortgage approval process has gone under a good deal of change over the last couple of years, with even more to come. So stay tuned, because even if loan approval is elusive today, the stars may align sooner than thought possible.