Will I Qualify For a Mortgage?
Posted on May 20, 2012 in Anxious Buyer?, MARK WELLS' BLOG | Comments Off on Will I Qualify For a Mortgage?
On the minds of all homebuyers is the dreaded question: Will I qualify for a mortgage? In the 20 years he has been providing mortgages for homebuyers, Mark Wells has found that often times the person most worried about this is actually the person most likely to qualify. “People who are worried about their credit are usually those who feel a high degree of responsibility, and they are usually in better shape than they think,” Mark says.
But with all the recent changes in underwriting standards, how can anyone know upfront whether they qualify? “In reality”, Mark says, “they cannot, and they need a good mortgage broker to help them with the pre-qualifying process.” However, there is still a standardization of most lending guidelines, and here are the answers to the most asked questions Mark receives every week:
- What credit score do I need to qualify? Conventional loans will, on paper, go down to a 620 middle credit score. However, there are significant cost and rate penalties for scores under 660. FHA is generally the best route for most borrowers under 660, and FHA will lend down to a 640 score with no rate penalty at this time. VA loans (loans for military veterans) will take scores lower than 620 under some circumstances.
- How much down payment will I need? Conventional loans now require 5% down, while FHA requires only 3.5%. VA loans are still done to 100%, as are RDA loans (Rural Development Authority loans), so they need no down payment.
- Can my down payment come from a gift? FHA allows all of the down payment and closing costs to come from a gift from a relative of the borrower. Conventional loans require that at least the first 5% of down payment come from the borrower’s own saved and earned funds, but any other amounts can be gifted.
- I have good credit but not much income. My spouse has bad credit but a lot of income. Can I put my spouse’s income on the loan so that we can qualify for more house? Unfortunately, no. All loan programs are under the same guideline here: If you use the income, you must use the credit, too.
- How about using a co-signer? All programs except VA, allow for a non-occupant co-borrower to co-sign a loan with you. The income / credit rule still applies, so adding them to the loan means using their income AND their debt in qualifying. But as long as together you meet the loan guidelines, a co-signer can be used.
- How much house can I afford? There has been a general tightening of the debt to income ratios allowed on most programs, but a good rule of thumb is this: A salaried or hourly borrower can afford a house payment of around 30% of their gross income (their income BEFORE taxes are deducted from their paycheck). A self-employed borrower can afford a house payment of around 30% of their NET income (their taxable business income AFTER deducting business expenses). However, carrying other large debts can lower the amount of house you qualify for.
- I have heard that it is hard to get money to buy a house with now. Is that true? No, it is one of the biggest misconceptions over the past year and a half. Money is readily available in the mortgage lending markets, and lenders are anxious to lend. There has been a tightening of underwriting standards, but it puts us where we were about 10 years ago in qualifying. That is, a person with decent income, decent credit, and 3-5% down, is going to qualify for a home mortgage.
Mark urges anyone who wants to know if they qualify for a home mortgage, to call him for a free, no obligation analysis. He also welcomes any mortgage related questions you may have. He can be reached at (864) 235-9596, or by e-mail at
Mark@TheGreatestRates.com.
