Can you qualify for a home mortgage? Here are the main things that lenders evaluate when deciding whether or not to offer a mortgage to a potential borrower.
Want to Qualify for a Mortgage? You Need Steady Income
The first and arguably most important factor in determining if you can qualify for a mortgage is income. It’s not just about how much you make, though. Several things come into play here.
Reliability – how reliable is your income source? Does it come as a steady paycheck that hits your bank account twice a month from a full time job? Or are you a salesperson that works purely on commission, whose income fluctuates month to month?
History– how long have you been earning your current income source? Have you been at that job for a couple of years, proving that you’re settled there and likely to stay? Or did you just start the new job last month?
Amount – how much do you make every month? Your gross income is an important piece of your debt to income ratio, which is another thing lenders evaluate. But even besides that, a lender doesn’t want your mortgage to be too high of a multiple of your income. So if you make $50,000 a year, don’t expect to easily get a mortgage of $500,000 (10x your annual salary.)
To Qualify for a Mortgage, Have a Good Debt-to-Income Ratio
Your debt-to-income ratio is essentially a measurement of your monthly cash flow of income vs. debts. Even if you have a high income and make lots of money, your debt to income ratio may be poor if you have lots of debt such as car loans, student loans, or credit cards.
To calculate your debt-to-income ratio, divide your monthly debt payments by monthly gross income. For example if you make $6,000 a month and your debts are $2,000 a month, $2,000/$6,000 = 0.33, which is a good ratio to help you get a loan.
To get the best deal, you’ll usually need a debt-to-income ratio of less than 36%. If your ratio is over 43%, it can be difficult to find a good rate, and some lenders may outright turn you down for the mortgage.
Something else to consider is your credit score.
Qualify for a Mortgage with Fair Credit
What’s your credit score? Since your credit score essentially tells lenders how well you pay off debt, it’s an important metric for mortgage lenders.
If your credit score is between 580 and 669, your credit score is fair. You can get mortgages, but the rates probably won’t be great.
If it’s above 670, your credit score is good and you’re likely to have a lot of lenders to choose from. This also means you should be able to get a good interest rate.
Above 740? You’ll have no problem getting a great rate.
Do You Qualify for a Mortgage?
While these are a few of the most important factors, there are others involved. Give us a call at (949)-651-6300 and we can give you some more personalized advice. We look forward to hearing from you.