A Rough Outline Of Loan Qualifying
We all know that qualifying for a loan is now more difficult than it ever has been. And the reality is that not every person who tries to get a loan qualifies for a loan. In making a loan, the Underwriter need to follow protocol to be confident that the borrower has the ability to maintain repayment. The first thing to do is get your financial house in order. Here are four main items that the Underwriter will look at in determining if you can qualify.
1. Down payment money- Most loans do require some sort of down payment. Anywhere from 3.5% to 20% is not unusual. However there are a few specific loan programs such as the USDA Loan and VA that allow the purchase of a home with no down payment.
2. Two years of steady employment- The Underwriter will need to determine your ability to repay the loan. Typically they will use a two year income average to determine eligibility.
3. A Good Credit Score- Different types of loans require different credit scores. While in the “old days” you could get a loan with a credit score in the mid 500 range, now you really need to have a credit score of at least 640. Some lenders will require scores in the 700+ range.
4. Your new house payment really shouldn’t be more than roughly 29% of your total monthly income. Lender’s do vary dramatically in this category. The important thing for you to know is that you may qualify for more than you are comfortable repaying. Good advice is to stay within your comfort zone.
So in the end, you will need to gather income, asset and liability information.
The lender will pull your credit report to verify your liability and payment history.
You will need to provide up to 90 days of bank statements, stock statements, retirement fund statements or any other assets in order to verify your assets and ability to make a down payment.
You will also be required to supply tax returns and W2 forms for the last two years in order to establish an income for qualifying. You’ll also be required to provide at least 30 days of paycheck stubs, mostly to verify that your income has not dropped and that you are still working.