For most people, purchasing a home is a significant step toward settling down. Once you’ve found a home that meets all of your criteria, it’s time to apply for a loan!
As you begin your research on the various types of home loans available and their requirements, you may find it difficult to comprehend all of the information available. In this article, we will attempt to define what a mortgage loan is and what the requirements are for obtaining one.
What is a mortgage loan qualification?
A mortgage loan is a loan obtained from a bank or lender to finance the purchase of a house. The house is used as collateral until you repay the loan plus an agreed-upon interest rate.
Mortgage loan types include:
- Fixed-Rate Mortgage Loans: A conventional fixed rate loan is one in which the fixed interest rate does not change over the life of the loan. Furthermore, your monthly payment, like your interest rate, will be fixed for the duration of your loan. although your interest rate is considerably higher in comparison to other mortgage loan types
- Adjustable Rate Mortgage Loans: also known as variable rate mortgages are different from the fixed ones. Unlike a fixed-rate mortgage, the interest rate will fluctuate throughout the term of the loan. As a result, your monthly payment will vary depending on your interest rate
- First Time Homebuyer Mortgage Loans (FHA): As the name implies, these loans are primarily intended to assist first-time home buyers. This option allows you to finance up to 97 percent of the home’s appraised value or purchase price, whichever is less. Normally, when a buyer doesn’t have very much to put down towards the house or maybe doesn’t have a very high credit score, this is a great option. FHA loans require inspections to ensure the condition of the home is compliant with their requirements. Sellers sometimes prefer not to accept FHA loans because of the repairs or restrictions based on the FHA requirements. Additionally, every lender will require an appraisal to ensure the price of the home is not above market value (so they’re not lending more than the house is worth) but FHA loans require an additional FHA inspection. The loan can always be refinanced later for a better rate or to remove the mortgage insurance which will reduce the monthly payment.
- Conventional Loan: This is typically the most desirable type of home loan to get. Buyers typically put between 5-20% as a down payment for these loans. The type of home purchased is much more flexible with these types of loans. There is no ‘inspection’ required by the lender, but of course an appraisal to again ensure the lender is lending more than the value of the home and that the loan to value ratio fits within their criteria.
- Veteran Affair Loan (VA): VA loans are for veterans and are similar to FHA loans because in addition to an appraisal they require a VA inspection. So, sometimes sellers do not want to deal with any additional repairs required, if any. However, a VA loan will fund up to 100% of the purchase price which makes it great for any veteran that qualifies.
Qualification Criteria: What do I need to qualify?
When it comes to mortgage loan qualifications, there are a few factors to consider. Among these is your credit score; obviously, your lender will first consult your credit history to determine whether or not you are capable of repaying the loan; the examination process will include how credit cards and loans are paid back. Eventually, Your eligibility is determined by your credit score.
Your debt to income ratio (DTP) is an additional component in obtaining a mortgage. They are fixed expenses separate from your new mortgage and are calculated by referring back to your gross monthly income (with taxes). This allows your lender to determine if you are spending less than 50% of your gross monthly income on fixed expenses.
Your mortgage home qualification will also be influenced by your assistance. Your lender will undoubtedly scrutinize your liquid assets. They’ll need to ensure that the funds you’re using for the down payment are available in liquid currency.
These requirements, along with others, determine your eligibility for a mortgage loan, so if you’re looking into financing your home purchase, do extensive research and don’t forget to come back to us for advice or to look at our house listings!