How To Qualify For A Mortgage

Qualifying for a mortgage is not necessary as easy as it used to be, but in some senses we have gotten back to the basics. A few years ago, you could state your income and with good credit get a mortgage. Today (2009), you must have have proof of what you put into your loan application.

The Basic Information To Qualify For A Mortgage

Good Credit

You must have credit scores above 620. If not, you will need to get your credit scores above 620 to allow you to qualify for an FHA home loan. Minor credit problems are ok for an FHA mortgage, but you should show good credit history for the past 12 months. If you have had a problem within the past 12 months you better have a very good reason and be able to prove that you have cleaned up the problem and that it should not return.

Some Credit History

At a minimum, you need to be able to prove some credit history. If not on your credit report you will need to be able to show some history with a cell phone, rent payments, utility company payments. Cancelled checks are a great way to prove credit history. You should have at least 3, preferably 4, credit accounts that you can show history with. Also, you want to shoot for having at least 6 months of history that you can prove.

Low Debt To Income Ratios

You want to have some credit if at all possible like a credit card account or a car loan. But you do not want too much. Having some debt helps to prove that you can handle your credit responsibly. Too much debt can point to a problem with you not being able to handle your debt. Also, some credit will help to improve your credit scores as long as you are paying your bills on time. You will want to make sure that your debt to income ratio is under 45%.

Employed With A Paycheck

To qualify for a mortgage you will need a source of income. For most of us, that means having a job. Unless you are self-employed you will need to have a job that pays you with a pay stub and a W-2. Under the table jobs are not acceptable. You will need at least 30 days worth of pay stubs with year to date totals and your most recent W-2. You may also be asked to provide your last three years worth of tax returns and W-2’s as many programs now ask for this much income documentation.

Self-Employed

If you work for yourself, the days of the stated income or no income loans are over. You will need to prove income for yourself. This means tax returns where you show income – not everything written off. Do not let your accountant get crazy with your income so that you show very little if you want to qualify for a mortgage. Also, you will need to be self-employed for at least 2 years before you can get a mortgage. Also, be prepared to submit both your personal and your business tax returns for at least the last 2 years if not 3. You will also be asked to supply a current year profit and loss statement and possibly a personal financial statement as well as bank statements. Bottom line here – be prepared to show everything you have to prove that you are making money.

Money In The Bank

Just about every mortgage requires some form of down payment and closing costs. Unless you are a Vet or are applying for a rural housing loan you better have some cash in the bank. FHA requires that you have 3.5% of the purchase price and some conventional mortgages require 3.0%-5.0%. Money can come from several places like a gift from a relative, or a down payment assistance program, or a short term tax credit bridge loan from either your approved FHA lender or a state sponsored program.

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