One of the very first steps in the journey of buying a home is qualifying for a mortgage loan. In fact, this step might be the first step that actually moves things along.
The qualifications for a mortgage loan aren't too difficult, or too extensive, but clients do need to be aware ahead of time.
The Basics of Qualifying
There are basic qualifying factors that lenders and mortgage companies consider when looking at loan applicants. These factors typically stay steady regardless of what is going on in the housing market.
The basic factors are:
- Income (how much the client(s) make annually)
- Debt-to-income Ratio (how much do client(s) already owe vs. what they earn)
- Assets (other homes, cars, boats, funds, accounts, etc.)
- Credit Score (FICO scores above 620 are the typical requirement)
- The property type (the property type determine the type of loan usually)
The basics of qualifying follow logic for the most part. For example - for a higher priced property - a higher income and lower debt-to-income ratio are desirable. But, don't let that discourage clients because there are ways to work around these circumstances.
Say a client as low credit score, signifying to lenders they aren't as reliable of a borrower as they might like. This can be frustrating as the past can greatly impact a credit score and clients may be much more financially stable now. There are loans out there that cater to clients with a credit score as low as 580, or even lower with a hefty down payment.
A good rule of thumb when thinking about qualifying for a loan is: the higher the debt or lower the credit score - the higher a down payment and/or income will be necessary to qualify depending on the type of loan and purchase price.
More Specifics and Workarounds
The good news is that there are in fact multiple types of loans and a good lender can usually work with a client to find something that meets their needs. That might require the client adjusting their expectations as well, though.
Don't forget to talk to clients about their mortgage payments to make sure they understand potential PMI costs and what their monthly payments will consist of. Qualifying for a mortgage is great but clients need to be able to afford their home.
If a client is denied a loan; be sure they ask why and work to rectify whatever is holding them back. Also, be sure to check with the lender that they are looking at as many workarounds and other options as possible.
Qualifying for and securing a loan can be a huge headache. The paperwork required and hoops that clients may have to jump through can be exhausting, but don't lose sight of the bigger goal ahead - home ownership!
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