Be Prepared When You Qualify For A Mortgage | Functionality


youUncertainty is a feeling felt by many potential first-time home buyers.

The standard down payment may be on hand, but getting a mortgage approved isn’t just about having the minimum amount of cash required to qualify for a loan, said Lisa Mericle, mortgage lender at United Community Bank.

“Lenders should review a person’s credit history to ensure they meet the minimum requirements of the applicable loan program,” she said. “A good repayment history with current creditors is important, as well as multiple sources of credit.”

All programs have a minimum credit score required to qualify, she said.

“Also, the interest rate may be lower or higher depending on your credit score,” she said. “The higher your credit score, the lower your interest rate can be.”

Having a mix of installment loans such as mortgages, car loans, and bank loans, as well as revolving accounts such as credit cards and lines of credit, helps demonstrate a borrower’s responsible payment history with different types of credit, she said.

“The borrower’s work history is important,” Mericle said. “It is reviewed for its stability. The borrower’s income is also examined in order to calculate the debt-to-income ratio. This is used to demonstrate their ability to repay the mortgage.

The typical down payment for a plus can be as low as 3% to 5%, but there are also specialty loans with no down payment required for qualified buyers. Those loans include some from the U.S. Department of Agriculture, she said.

“The property must also be eligible for USDA funding,” she said. “The Veterans Administration offers 100% funding to eligible veterans. United Community Bank offers an affordable loan program called the PATH loan that offers 100% financing.

There are times, however, when a larger down payment is required, Mericle said.

“If someone wants to avoid private mortgage insurance on a loan, they will have to put down a 20% down payment,” she said. “If someone buys a house that is not their primary residence, a larger down payment would be required. For the purchase of a secondary residence or an investment/rental property, they may be required to pay a deposit of 20%.

A below-average credit history is the most common reason mortgage applications are turned down.

“It could be due to late payments on their credit report or other derogatory information,” Mericle said. “Another reason is related to excessive obligations or insufficient income. They are unable to qualify for a mortgage due to their current financial obligations and ability to repay.

Al McKinnon, chairman of South Coast Bank and Trust, said mortgage rates are determined by the type of loan product selected.

“First-time home buyers can put down as little as 3.50% for an LTV (loan-to-value) of up to 97%,” he said. “Conventional mortgage programs look for 20%, but programs like FHA or VA offer options for lower down payments. Generally, any amount below 20% will require private mortgage insurance.

During the mortgage application process, lenders look at employment history, at least for the past two years, and debt-to-income ratios. They also confirm the source of the down payment, among other considerations, McKinnon said.

“Credit scores impact approval and interest rates offered,” he said. “The better the credit ratings, the better the chance of lower interest rates.”

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