How to Qualify for a Mortgage

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Creative Commons License photo credit: Jofus | JoeTheDough

Qualifying to receive a home mortgage loan has never been a particularly easy thing and it’s an experience which has only gotten more difficult in recent years. With the sub-prime mortgage bust and the increase in home foreclosures that has taken place, banks are more hesitant than ever before to offer a home mortgage to someone. Many people who once owned homes now rent because they can’t get approved for a mortgage loan. But that doesn’t mean that getting a home mortgage is impossible. It just means that you need to know what you have to do (and prove) so that the lender sees you as a responsible bill-paying home owner who deserves a home mortgage loan.

There are three basic things that you need to set in place before you try to qualify for a home mortgage. Taking care of these three things should make it significantly easier for you to qualify. Here’s what you’ll need to do:

1.Establish a good credit history and reduce existing debt. This is the one that’s most difficult for a lot of people, especially with the economy currently in a precarious position. Many people have a significant amount of outstanding credit card debt. And more than a few people out there have had trouble with their credit in the past. Both of these credit issues need to be taken care of before you can qualify for a home mortgage loan. The goal here is to set up a budget and repayment plan which will allow you to make all of your credit card payments on time and to start reducing that debt.

The good news is that you don’t have to have absolutely perfect credit to apply for a mortgage. However, you do have to have good credit. Order a copy of your credit report to make sure that things are up to date on it. If you have serious credit problems, you need to take the time to repair your credit before you apply for a home mortgage loan. This means establishing a positive relationship with all existing lenders.

You also should know that you don’t have to have zero debt to qualify for a home mortgage. Most people who get a mortgage do have some outstanding debt in the form of credit cards, student loans and car payments. However, your debt-to-income ratio is going to be something that the mortgage lender will look at to determine whether or not you qualify for a loan. As a result, you’ll need to make sure that you’ve reduced the amount of your debt as much as possible. This shows that you can repay loans and also reduces the lender’s concern that your other bills are going to take priority.

2. Establish steady employment and income that will meet the needs of the mortgage. You are going to have to prove that you can hold down a job for more than just a couple of months so don’t plan on trying to qualify for a home mortgage if you’ve just switched jobs. More importantly, you’re going to show that your income is large enough to pay for the type of mortgage that you’re trying to get. You should have approximately 2-3 times more money in income each month than the cost of the home mortgage will be.

What you’ll need to be able to do in this area is show that you have steady employment with an income that exceeds that which will be necessary to pay off the mortgage loan. If you are self-employed, you’re going to need to make sure that you have tax records which demonstrate your income. You should be able to prove that you’ve been at the same job with at least this level of income for no shorter than two years. Longer is obviously better.

3. Save up enough money for the down payment. It’s really hard to get a mortgage payment these days with no money down so you should plan on saving up for the down payment on the home before you even try to qualify for the mortgage loan. Ideally, you’ll want to save up about twenty percent of the cost of the home so that you can put that as the down payment and get a mortgage loan for the rest. The more that you save up, the more likely it is that you’re going to qualify for the mortgage.

There are many different factors that are going to be taken into consideration by the mortgage lender in determining whether or not you qualify for a loan. However, the basic thing that they want to see is that you have a history of being able to pay your bills and that you have enough money coming in to add the mortgage payment to the list of bills that you already have. This three-step process proves that and should help you to qualify for a home mortgage.