Qualifying for a Home Loan in 2019 – What Requirements and Guidelines You Need to Know
1) How much of a Down Payment do I need to come up with?
In the recent past, people used to think 20% down was necessary to qualify for a home loan or to have a reasonable mortgage payment. For the most part, this is no longer the case. There are many types of mortgage programs that allow for low down payment options or no down payment in some situations. You also don’t have to be a first time home buyer to qualify for these programs either.
FHA Loans are one of the most popular types of mortgages applied for in today’s market, this is mainly because of low down payment options and the flexible qualifying requirements. Without down payment assistance, you just need a minimum of 3.5% down. A lot of people think FHA is strictly for first time home buyers, but that is not true. it’s a government-backed home loan, but they don’t require you to be a first time home buyer. FHA stands for Federal Housing Administration.
traditional Loans have been gaining a lot of traction over the last few years and will soon replace the FHA loan program as the most popular loan product on the market. traditional loans allow for a minimum down payment as low as 3% down and also allows for several creative ways to buy out the monthly PMI (Private Mortgage Insurance). This strategy helps reduce the monthly payments while increasing your buying strength.
Minimum Down Payment requirements for each loan kind below:
VA Loans – No Down Payment required
USDA Loans – No Down Payment required
FHA Loans – Minimum 3.5% Down Payment required
traditional Loans – Minimum 3% Down Payment required
You can use gift funds for any of the programs listed above. Also, If you are a first time home buyer be sure to ask your loan consultant if you qualify for any down payment assistance program.
2) What Credit Score do I need to qualify for a Mortgage?
Aside from income verification, one of the biggest calculating factors in qualifying for a mortgage is your credit score. The higher the credit score the better your chances will be in qualifying. When a mortgage company or bank checks your credit for a mortgage application they will pull what is known as a tri-merge. That is when a credit report is combined with data and individual scores from the 3 major credit bureaus. Equifax, Experian, and TransUnion. The middle of the 3 scores will be used to determine your qualifying score. Ideally, you want to have a middle credit score of 680 or above. In most situations, the higher your credit score is, the better your rate and terms will be in addition.
There are minimum credit score requirements for every loan program, but to ensure you get qualified for the most competitive terms it is important that you do everything you can to learn how to increase and enhance your credit.
Below are the minimum credit score requirements for each loan program:
VA Loans – 620 (some lenders may allow for as low as 580+)
USDA Loans – 620
FHA Loans – 580
traditional – 620
3) What are the Income Requirements and Guidelines for a Mortgage?
Proving your ability to repay the loan is one of the most important requirements in the qualifying course of action. That is why showing sufficient and consistent income documentation is crucial when going by the pre-approval or qualification course of action. If you are a W2 employee and paid a salary then the verification course of action is fairly simple. However, can be more difficult for people that receive and/or rely on commissions, bonuses, overtime, etc. For borrowers that are self-employed and/or receive a 1099 it can be already more difficult and complicate especially since you can have a lot more write-offs and deductions when you’re self-employed.
First and foremost you need a 2-year work history to already qualify using any income source. However, for complete-time hourly or salaried employees that doesn’t average you have to be at the same company or industry for 2 years. That used to be a requirement but not anymore unless the lender/bank has their own overlay. If you receive and want to use commission, bonus, overtime or other types of income then you have to show a minimum of a 2-year history and the bank/lender will use a 24 month average for qualifying purposes. Self-Employed borrowers are now able to qualify with 12-24 months bank statements for certain nontraditional (non-QM) loan programs.
Qualifying Income supplies:
* complete-Time W2 Income/Salary
* Income from Part-Time Jobs (must be at the job for a minimum of 1-2 years in some situations)
* Income from a second complete or part-time job
* Overtime, Commissions, Bonuses (must average over 24 months)
* Seasonal (must prove 2-3 years consistency)
* Self-Employed Income
* Bank Statements (12-24 months)
* long-lasting Disability
* Child sustain/Alimony (Sufficient documentation required)
* Asset Depletion
What are the Required Documents Needed?
There are specific required documents needed that your loan consultant will request in order to course of action your loan approval. You should at the minimum have the below list of documentation freely obtainable and be ready to provide more depending on your particular situation.
* Complete Federal Personal and/or Corporate Tax Returns for the past 2 years (ALL SCHEDULES)
* W2’s for the past 2 years
* 1 Month worth of Pay Stubs
* Bank Statements (may need anywhere from 2-24 months)
* Retirement/Pension and/or Social Security Award Letters
* Disability Award Letter
* Divorce Decree
* Business License
* Asset Documentation