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| What Does it Take to Qualify for a Home Loan? |
One need not have perfect credit in order to get a loan approval. As mentioned earlier, you can currently
be in a Chapter 13 bankruptcy and still get approved by FHA standards. The better your credit is, usually
the better your rate is going to be. Generally, any collections, judgments and tax liens need to be paid off
prior to presenting your file to an underwriter for approval.
** You should avoid purchasing anything or letting anyone make credit inquiries on you while
trying to get a home loan. Wait to buy furniture and window coverings until after you close.
Don't open any new charge accounts, either.
If you have to do this, consult your loan officer before you do it. |
| Income vs. Debt |
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All loan programs will have requirements regardng the percent of debt you have in relation to your
income. This will dictate how much of a loan the lender will approve you for. For example, let's say
your monthly gross income is $4,000. You have a car payment of $300 and (2) credit card payments of
$50 each. Your new house payment is calculated to be $750 per month. This means that your total debts
will be $1,150 monthly. If you divide $1,150 (your debts) by $4,000 (your income), your debt to income
ratio will be 29%.
FHA requires 41% or less
Conventional requires 35% or less
Non-conforming will go as high as 55%
Remember, debt to income isn't a factor if you are doing the "No Income Loan"
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| Debt Ratio Explained |
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10% or less: You are doing tremendously well.
Keep it up, especially during the home buying process.
11% to 20%: You shouldn't have trouble getting loans. You need
to scale back if your ratio is nearing 20%.
21% to 35% You are probably receiving a lot of credit cards offers,
and you would be wise to ignore them if you are planning on buying a house.
36% to 50% Cut up your credit cards and make a committment to
get out of debt.
50% and higher: If you haven't done so already, seek the professional
advice of a debt counselor.
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| Job Time |
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The general rule is you must have been employed for at least (2) years continuously.
Conventional lenders require that you've been in the same field or with the same company for that (2) year period.
If you've been employed for less time, or you have a large gap between jobs, non-conforming programs
also have a "No Income, No Employment" loan as well.
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