How Can You Qualify for a Mortgage?

Dated: August 29 2020

Views: 344

How Can You Qualify for a Mortgage in Vero Beach

If you're like many people, you're ready to own your own home - but how do you qualify for a mortgage?

Here's what you need to know.

How Can You Qualify for a Mortgage?

When you want to take out a loan to buy a home, you'll have to provide a lender with quite a bit of paperwork that proves your income and a few other things. That means you'll want to gather bank statements, pay stubs, tax returns and W-2s. After you've gathered your documentation, it's time to take a look at your:

  • Credit score
  • Current income
  • Down payment

Here's a closer look at each.

Credit Scores

You don't need perfect credit to buy a home, but you do need a decent credit score if you want to score better interest rates and terms on your loan. 

A perfect score is 850, but only about 0.5 percent of people actually have that score. For lenders, scores of 760 are generally considered to be the best range. With a score like that, you're likely to qualify for the best mortgage interest rates. 

Here's a quick look at what lenders think when they see your scores:

  • Exceptional: 800 to 850
  • Very good: 740 to 700
  • Good: 670 to 739
  • Fair: 580 to 669
  • Very poor: 300 to 579

You'll want to get a copy of your own credit report so you can see how you're doing. (You can get one free copy every year thanks to the Federal Trade Commission, which directs you to go to AnnualCreditReport.com.)

Current Income

You'll need to make enough money - and spend little enough - to repay any loan you get from a lender. That means your lender will look at your debt-to-income ratio, or DTI. Your DTI is a measure of how much you're paying out versus how much you're bringing in. 

Most lenders want you to have a DTI of 36 percent or less.

Down Payment

Some home loans allow you to put down as little as 3.5 percent of a home's purchase price, which can be a great way to achieve your dream of home ownership. (Veterans Administration loans don't require any down payment at all, but not everyone qualifies for them - they're only available to veterans, current service members, and some qualifying dependents.)

But mortgage lenders do like to see that you have enough money in the bank to pony up a 20 percent down payment. If you're buying a $250,000 home, that's a down payment of $50,000. When you have less than 20 percent of a home's sales price to put down, lenders typically require you to buy private mortgage insurance, or PMI; it's their way of protecting themselves if you default on the payments.

Ready to Find Your Dream Home in Vero Beach?

Search:

Blog author image

Chip Boyer

Chip is the IT Manager for Alex MacWilliam Real Estate. He handles the technology needs of the company as well as helping agents in their day to day problem solving.....

Latest Blog Posts

5 Off-the-Beaten-Path Adventures Near Vero Beach

If you're buying a home for sale in Vero Beach, you'll be glad to know that there's always something to see or do nearby. In fact, check out these five quirky adventures you can go on after you're

Read More

The 5 Best Places to Catch the Sunrise in Vero Beach

If you're thinking about buying a home in Vero Beach, you probably already know that this community has tons of great places to watch the sun come up – but where are the best spots? This guide

Read More

3 Great Vero Beach Attractions Worth Checking Out

If you're thinking about moving to Vero Beach, you're not alone – this is an extremely popular area. After you get settled in, there are several fabulous attractions everyone should see. This

Read More

5 Great Places to Take Your Grandkids in Vero Beach

If you're a grandparent who's thinking about retiring in Vero Beach, part of your job is scouting out the best places to take your grandkids when they visit. We've got you covered with the five best

Read More