Things to consider when Pre-Qualifying:
The following example helps you understand the types of things we will be looking for as we pre-qualify you for a mortgage loan.
Gross Monthly Income
Be sure to calculate your total gross (before taxes and other deductions) monthly income. If any of your income is derived from commissions, over-time, or bonuses, you will need a 2 year history and this income will need to be averaged. If you are self-employed, it is best to send in copies of your last 2 years of tax returns for us to analyze and to calculate your income.
Credit is a critical issue when applying for any loan. The better your credit, the better terms (down payment requirements and interest rate) you can expect. Currently, credit scores need to be above 640 for government loans. Conventional loans will also require scores above 640, but scores above 740 will ensure that you get the best interest rates on conventional products.
Down payment requirements vary from program to program. USDA (rural) and VA loans do not require a down payment. There are other programs that may allow you to get into a home without a down payment. Please call for more details and to see if you would qualify. FHA loans require a minimum down payment of 3.5% of the sales price in order to qualify. The majority of conventional loans will require a minimum down payment of 5% of your sales price. Remember, any conventional loan with a down payment of less than 20% of the sales price will also have mortgage insurance.
The longer you have been at your job or in the same line of work, the better. If you are self-employed, you will need to have been in business for a minimum of two years and we will need to have the last 2 years of your completed tax returns in order to calculate your income. If you are new to a job, but have recently graduated from college or a trade school, you will not likely need 2 full years on the job as long as your pay is hourly or salaried (commissioned earnings WILL need a 2 year history). Also, as long as you have a solid 2 year work history, the length of time on a job may not matter as much either. For instance, if you have been employed with a company for only 3 months, but you worked at your previous job for the past 4 years—and your new job is similarly related to your previous job—then you should be fine.
Your ratios are determined by dividing your anticipated house payment (remember to include estimates for taxes, insurance, and mortgage insurance if you will have it, as well as HOA fees) by your gross monthly income. If that number is 30% or less, you are in good shape. Next, take your anticipated house payment and add your monthly debts (car payments, minimum credit card payments, student loans, child support, etc.) divide this amount by your gross monthly income. If this number is between 40% and 45%, then you are probably in good shape. The required housing and total debt ratios are typically 29/43. If you know your numbers will fall within these limits, you are well on your way to qualifying for a mortgage.