As a first-time homebuyer, understanding the requirements to qualify for a mortgage can be confusing. The applications, paperwork, and signatures required during the process can be overwhelming and sometimes discouraging. It is crucial to prioritize what is needed so you can simplify your mortgage journey. Here are the top 5 things that mortgage lenders consider when looking at your application.
Having a high credit score increases your chances of preapproval and receiving a lower interest rate. This means making on-time payments, keeping your credit card balances low, and staying away from those dreaded collection agencies. It is also a good idea to minimize your credit inquiries once you have applied. This includes new credit cards, auto loans, or other personal loans in your name.
STEADY INCOME STREAM
Most conventional loans require that you have worked for the same company (or industry) for at least two years. Although there are exceptions, it is necessary to keep this in mind if you plan to switch careers during your new home search. Lenders will generally want to see proof of income via pay stubs, W2s, and bank statements. If you are self-employed, lenders will want to see two years of cash flow for your business.
LOW DEBT-TO-INCOME (DTI)
This important indicator is the link between your credit and how you make for a living. To determine how much of a monthly payment you can afford, is based on how much money you make per month versus how much your minimum monthly payments are on all active loan/credit accounts. You might want to hold off on any large purchases during the home hunt since it could negatively affect you and your DTI.
Typically, a conventional loan requires a down payment between 5% and 15%. There are special cases, depending on the type of dwelling (among other factors), that may require more or less money down. But you’ll want to plan accordingly to understand what price range you can afford during your research.
OTHER ASSETS/FORMS OF INCOME
If you own stocks or bonds, run a side hustle, or have other various income streams, talk to your lender to determine if these can be applied towards your monthly income. They will want to see longevity with these streams, but every dollar counts when hoping to land your dream home.
At Family First Funding, we are here to help you make the preapproval process simple and stress-free. Our team of creative, licensed loan officers understand the challenges of a first-time homebuyer and will guide you every step of the way. Contact us today to have one of our loan officers reach out to you or apply now if you’re ready to get started right away!