The media is full of scary stories about how hard it is to qualify for a mortgage. Just check out a few of these recent alarming headlines:
- Why is it so hard to get a mortgage these days?
- Tight standards make mortgages tough to get
- Why you can't get a mortgage
With mortgage rates near historic lows and home prices down roughly 25 percent (national average) from their peak, now may be a great time to buy a home. But can you qualify?
Certainly, it's more difficult than it was few years ago, but it may not be as hard as the stories claim. You don't have to walk on water. You don't have to offer up your first born. You do have to be prepared.
This is the first in a series of weekly articles that will examine what it takes to qualify for a home loan these days. We will look at the factors that affect your ability to qualify and suggest what you can do to prepare yourself.
We will start by examining credit. What does your credit score mean, and what score do you need to qualify for a loan? We will examine how derogatory information in your credit history—such as late payments, collections and bankruptcies—can affect your score. If your credit score is currently low, we'll outline steps you can take to raise it. And, finally, we'll discuss how you can qualify for a mortgage even if you don't use credit, as well as how you can re-establish credit after a major financial event, such as a bankruptcy.
From there, we'll turn our attention to employment. Conventional wisdom is that you need to work in the same job for two years before you can qualify for a mortgage. That's not necessarily true. We'll discuss how you can qualify if you recently have changed jobs, left the military or graduated from school. We'll also discuss how a period of unemployment affects your ability to qualify.
One of the most important factors affecting your ability to qualify is the affordability of the mortgage payment. We measure this by examining your qualifying income and your other debts. We'll discuss how to calculate your qualifying income, including income from part-time and second jobs, commission and bonus income, and retirement income. We'll also discuss how deferred student loans, cosigned loans and collections can affect your ability to qualify.
Our final factor is liquidity. Do you have enough cash to close the deal? This includes your down payment (if any), closing costs, and pre-paid expenses due at closing (mortgage interest, property taxes, and insurance). We'll review the down payment requirements for different loan programs, and we'll discuss how the size of your down payment affects the need for mortgage insurance. We'll also give you ways to avoid paying closing costs and pre-paid expenses, including asking the seller to pay them for you.
Check back next week when we dive into credit reports. If you have any questions or comments, or if you have suggestions for other topics I should cover, please leave them in the comments section below. And please remember that mortgage programs and guidelines change and vary between lenders, so it's always best to check with a mortgage professional to determine if you qualify.