Homeownership is a dream that many people have. In order to make that dream a reality a prospective home buyer must qualify for a home purchase loan. The steps to qualifying for a new home purchase, includes;
- Having a good credit score: The higher your credit score the more loan programs you may qualify for. A high score can also qualify you for a better interest rate. FHA loans generally require a minimum middle credit score of 600 for approval. However, lower scores can qualify with compensating factors. USDA loans require a minimum score of 640. VA Loans usually require a minimum score of 600. Conventional Loans generally require a minimum score of 640. Find tips on improving your credit score here.
- Having a good creditor payment history: Other than medical debts any outstanding past due debts showing on your credit report must be settled in order to be approved for a purchase loan. Often these creditors will settle for lower than the stated past due balance if you negotiate with them.
- Having a good history of employment: In order to get approved for a home purchase the borrower(s) must have a minimum of 2 years of steady employment in their line of work.
- Having a reasonable debt to income ratio: To be approved for a home purchase loan your monthly debt to income percent must meet a certain standard. For VA, USDA, and Conventional Loans your overall monthly debts can not exceed 43% of your total monthly income. FHA will allow up to 55% DTI for borrower(s) with a middle score of 620+.
- Having the required down payment: Unless you are qualifying for a VA or USDA Loan which offer 100% financing programs, a down payment is required to qualify for a purchase loan. FHA requires 3.5% of the purchase price. Conventional Loans require 5% of the purchase price. However, there are many down payment assistance programs that borrowers can apply for to help them with this. Find available down payment assistance programs in Maryland here.
- Having enough money to cover the closing costs of the loan: In addition to the down payment there are other expenses of doing the purchase loan. Title fees, appraisal, home inspection, escrows, transfer taxes, underwriting, processing, etc. These fees usually add up to be about 3% of the purchase price. However, home buyers can cover this expense by requesting a sellers assistance of 3% towards closing costs in their purchase offer. Lenders can also sometime assist with these costs by doing a lender credit.
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