Lenders are currently increasing the value of their mortgage offerings and lowering their requirements. However, home loans will never again be as easy to get as they used to be before the housing bubble burst of 2007. The question is whether you have what it takes not only to qualify for a loan, but to get a great deal with lower interest rate and more flexible terms and conditions. Let’s find out.
You will need a credit score of at least 720 in order to get access to the best mortgage loans. If your score is over 780, you will most certainly secure a lower interest rate. It certainly pays off to work towards boosting your credit score. It is all a matter of reasonable borrowing and timely repayment.
You should have no blemishes on your credit record such as delinquencies, foreclosure or bankruptcy. The best home loan applicants do not have late payments either. It is important that you review your credit report in advance. You have to have any errors fixed. Make a plan for improvement, if necessary.
With the new mortgage rules from January 2014, applicants have to have a debt-to-income ratio (DTI) no higher than 43% in order to qualify for a mortgage. This ratio shows what size of your income goes towards paying bills. If your DTI exceeds 43%, you will be considered unable to repay your monthly home loan installments. The best strategy is to restrict your borrowing in the months before making a home loan application. Any DTI which is lower than 35% would be outstanding and will give the best chances of securing a great loan.
The size of your income is important since the lender will ensure that your monthly mortgage payment will not exceed 33% of it. At the same time, the lender will evaluate how secure your income is as well. The more secure it is, the better your chances of getting a home loan are. Currently, lenders prefer applicants who have been working for the same employer for the past two years at least.
The best home loan applicants have sufficient savings to make a down payment of 20% of the value of the property. This will not only give you higher chances of approval. You will not have to pay for private mortgage insurance. Besides, since the loan amount will be smaller, you will save on interest as well. As you can see, the higher down payment brings multiple benefits.
It is easier to qualify for a conventional loan whose amount does not exceed $417,000. If you want to buy a large luxury home and borrow more than this, you will have to apply for a jumbo loan. Given that these loans bring a higher risk, they are more difficult to get.
Lenders are now required to scrutinize applicants more strictly than ever before. That is why you should have documents verifying each and every one of your income sources and loan repayment transactions. Keep deposit receipts, bank account statements, tax returns papers and W-2s well organized and use them to support your application.
Take the necessary measures to become the perfect mortgage applicant.