When it comes to getting a home loan, there are plenty of full-service lenders out there willing to assist you through the process. However, even though help is readily available, the process of obtaining a mortgage can seem overwhelming. The entire process can even be a challenge for those who are on their second or third mortgage or who are looking to get a reverse mortgage. Getting approved is not a guarantee. If you are looking for a home loan, here are three things that lenders are looking for.
A Healthy Credit Score
One of the first things that a lender looks for when determining whether or not to approve you for a loan is a healthy credit score. A lower credit score can signal that you are financially irresponsible. If your credit score is below 620, you will most likely not qualify for a conventional mortgage. The credit requirements for a loan backed by the Federal Housing Administration are a little less stringent; however, you will need a credit score of at least 500 to qualify for this type of loan in most cases. If your credit is less than stellar, it could be preventing you from buying a home.
Manageable Existing Debt
Another thing that lenders look at is your level of debt. Your debt-to-income ratio is the ratio of your monthly debt payments to your take-home income. These debts include things like student loan payments and credit card payments. If the ratio of your debt to your income is too high, you may find that you are unable to get a loan. Typically if your debt-to-income ratio is higher than 43 percent, you will have difficulty getting a home loan.
A Down Payment
While it may seem like a pain to save up for a down payment, it can improve your chances of getting a home loan. While 20 percent has been the traditional recommended down payment, coming up with that amount can be a challenge, especially in areas with high home prices. However, it's important to note that while you can obtain a home loan with a low down payment, saving up can give you an advantage. The larger your down payment, the less you will need to borrow and the more likely your mortgage application will be approved.
If you are looking for a home loan, there are a few things that lenders are looking for. A good credit score, a low debt-to-income ratio, and a down payment are things that lenders look for. Having these things can make it easier to get a home loan.
