According to the United States Census Bureau, nearly 65 percent of homeowners have a mortgage. If you’re dreaming of purchasing a home, you will first need to explore how to qualify for a home loan. Once you understand this vital part of the journey toward homeownership, you can contact a lender and get started.
How to Qualify for a Home Loan
Understanding what lenders are looking for will help you put your best foot forward when you apply for a home loan. Lenders will want to assess your ability to repay before approving you for a mortgage. To do that, they consider your creditworthiness and figures like your debt-to-income ratio. To ensure that you’re ready for the assessment, we encourage you to do the following:
Check Your Credit
A three-digit number between 300 and 850 that conveys your creditworthiness, your credit score matters to your lender, so it is smart to check it before applying for a mortgage.
Decrease Your Debt
Lenders do not define excessive debt as a set number. Instead, they view the amount of debt that you are carrying in comparison to your income by weighing things like your debt-to-income ratio. Getting your debt-to-income ratio as low as possible before you seek a home loan is a good idea. How do you do it? Decreasing the amount of debt that you are carrying is the most effective way to lower this critical ratio. Take a careful look at your budget, and make payments to lower your debt.
Build Your Savings
Your debt-to-income ratio is not the only ratio that lenders look at. They will also consider your loan-to-value ratio, which is a comparison of the amount of the loan to the value of the property securing it. As Investopedia explains, the lower this ratio is, the better. Having a substantial down payment reduces the amount that you will need to borrow when purchasing a home, which will make you more appealing to lenders. Building your savings also gives you a larger financial cushion, and that can make the lender feel more confident about your ability to make payments.
Plan for the Paper Trail
Qualifying for a home loan involves some paperwork, and planning for the inevitable paper trail will help this part of the process run more smoothly. The documents needed for a home loan application will vary depending on your circumstances, but all borrowers should expect to provide at least the following when applying for a mortgage:
- Copies of all applicants’ driver’s licenses or IDs
- Copies of paycheck stubs for the last 30 days
- Documentation of any commissioned or bonus income
- Copies of saving and checking account statements for the previous three months
- Copies of recent statements for other assets, accounts, and investments
- Copies of W-2s and other tax forms for the prior two years
- Documentation of employment history for at least two years prior
- Documentation of residency history for at least two years prior
- Copies of the HUD-1 if a mortgage was paid off within the last two years
- Documentation for any assets being utilized for the down payment, closing costs, or as cash reserves
- A copy of the sales contract when it is ratified
- Documentation of any earnest money in the form of a canceled check or bank statement
If you have questions about how to qualify for a home loan, the loan programs available to you, or any other part of the mortgage process, you need answers that are accurate, concise, and clear. Let us assist you. The experienced loan officers at PrimeLending strive to make securing the right mortgage for your unique situation as simple and hassle-free as possible. At our branches located throughout Kansas City, we can help you explore our wide variety of loan products and programs. We can also help you learn how to qualify for a home loan in more detail. When you’re ready to get started, please give us a call at 844-701-5626.