Are you hoping to buy your own home someday? You are probably anticipating getting a mortgage to finance your purchase. However, what does it take to qualify for these types of loans, and how much money do you need for a down payment?
Before you shop around for the best mortgage, it’s a good idea to consider what lenders look for before they approve your application.
SoFi provides mortgage loans that are designed to meet your needs. The site offers loans with flexible terms and competitive interest rates, as well as offering loans with a down payment of just 3%. Best of all? You can get pre-approved without affecting your credit score. According to SoFi, “Turn your dream home into a reality with flexible terms, competitive mortgage rates, and down payments as little as 3%.”
Your Income and Job Situation
There is no specific income requirement; rather, the lender wants to make sure that your monthly income can support your monthly mortgage. Several factors contribute to this. For example, if you are not making a large income but you’ve managed to save enough for a substantial down payment, then the amount you will owe each month might be considered manageable.
In addition to your current income and job situation, a creditor might also look at your employment history as this will indicate if you are steadily employed. Other income that factors into this equation might be if you receive or pay child support.
Your Credit Score
If you have a high credit score, then creditors are more likely to approve your loan. A low credit score, on the other hand, implies that you are at a higher risk. Most commercial creditors will not want to loan money to someone with a credit score of less than 620. Government-backed loans will allow you to have a credit score as low as 580. The higher your credit score, the better the rate of interest you will pay.
Your Debt Burden
Not just your total debt burden but your debt-to-income ratio, or DTI, will be used by lenders. These numbers tell them if you have the cash flow levels you need so you can pay the mortgage. These debts include other long-term debts such as your auto or student loan payments as well as your level of credit card debt. Again, government loans tend to have more lenient terms than conventional creditors.
Lenders look at both sides of the balance sheet – both your debts and your assets. Assets can include:
- Savings accounts
- Retirement accounts
- Items or property you own outright
Your Property Type
The type of property you are interested in buying also plays a factor as it will influence the riskiness or security of the loan.
For this reason, you’ll get a better deal if you are wanting to buy a modest single-family dwelling that will be your family’s primary residence. Lenders know that you have a large vested interest in making sure your home’s monthly payment is covered.
Creditors have less assurance about how you will prioritize an investment property so they will typically require a larger down payment as well as want a higher credit score.