For a first-time buyer, the thought of applying for a mortgage loan can be daunting.
Will you qualify? What sort of rate will you get? What type of mortgage should you apply for? Are you even a good candidate in the first place?
The questions are endless.
But the truth is there are no perfect mortgage borrowers. In general, a lender just wants to see that you’re a safe bet—that you’ll pay your bill on time, that you’ll care for the home, and that you’ll make responsible financial decisions while you’re a homeowner.
Not sure how to qualify for a mortgage loan? Worried you won’t? Here’s what a mortgage lender generally looks at:
Your debt-to-income ratio.
A lender wants to know your monthly income, as well as how many debts you’re currently covering with that income. Do you have car loans? Student debt? Credit card balances? Most lenders want to see a debt-to-income ratio of 43 percent or less, meaning 43 percent of your income goes toward debts. There are some loan programs that may allow higher DTI ratios, though, so check with your lender to be sure.
Your payment history.
Mortgage lenders will also pull your credit report, looking at your open accounts, your debts, and how often you pay those. If you’ve got lots of high balances and overdue accounts, that may send up a red flag that you’ll do the same with your mortgage. If you regularly pay your bills on time and have no creditors calling, you’ll be a much safer bet for a mortgage.
Your credit score.
Your lender will also look at your credit score. An 850 is the highest score you can have, but very few consumers have that. Generally, you’ll need to have at least a 580 to qualify for an FHA loan, though some loan programs may allow for lower scores. Be prepared to come to the table with a decent down payment, though.
Your employment history.
Finally, a mortgage lender wants to know that your income is steady and reliable—and that you’ll be able to use it toward your mortgage payments for the long haul. They’ll verify your employment with your boss, and they may want to see past tax returns to double-check you have a steady stream of income.
If you’re worried about qualifying for a mortgage loan, take time to work on your credit and pay down your existing debts. Use our mortgage calculator to see how much home you can afford—before you start shopping.