Buying a home is a major financial milestone and securing a mortgage loan is one of the first steps in the process. Lenders look for certain factors to ensure that you’re capable of repaying the loan. Here’s a breakdown of the six key requirements you need to meet to qualify for a mortgage.
1. Credit Score
Your credit score is one of the first things lenders check when you apply for a mortgage. It helps them assess your reliability as a borrower. A higher score typically results in better interest rates and loan terms. You can monitor your credit score with CreditAdvisor.
2. Income and Employment History
Lenders want to see that you have a reliable income to make your monthly mortgage payments. Typically, lenders like to see at least two years of stable employment in the same field or job. Your income, whether from a salary, hourly wages, or freelance work, should be consistent enough to prove you can handle long-term payments.
3. Debt-to-Income Ratio (DTI)
DTI is a key indicator of your ability to manage additional debt. It compares your total monthly debt payments (including your potential mortgage) to your monthly income. Most lenders prefer a DTI of 43% or lower, though some may approve loans with higher ratios depending on other factors.
4. Down Payment
The down payment is a percentage of the home’s purchase price that you pay upfront. The more you can put down, the better. A standard down payment is 20%, but many lenders offer loans with lower down payment options, sometimes as low as 3-5%.
5. Assets and Savings
Lenders want to see that you have enough savings to cover the down payment, closing costs, and other expenses that come with buying a home. They may ask for proof of savings and assets, including bank statements, retirement accounts, and other investments.
6. Property Appraisal
Once you’re pre-approved for a mortgage, the lender will order a property appraisal to verify that the home’s value matches the loan amount. If the appraisal comes back lower than expected, you may need to adjust your offer, increase your down payment, or even find another property.
By ensuring you meet these key requirements, you’ll be in a strong position to secure the home loan that fits your needs. For personalized advice on qualifying for a mortgage, reach out to a Horizon Bank Mortgage Advisor today!