Mortgage Requirements: Are You Ready for Approval?

If you’re ready to buy a house, hold on. Like most buyers, first you need to get approved for financing that major purchase.

This means getting a mortgage. Do you know what it takes to get approved? Are you prepared?

Find out about mortgage requirements before you get too excited about home-buying. Then get your ducks in a row so you’ll be ready to swoop in and achieve approval.

The 4 Major Keys to Mortgage Approval

Financing for buying a home requires some basic standards for approval. Make sure you meet the mortgage requirements, and if you don’t, start working on your finances to get them in shape.

1. Stable Income

Most lenders will require that you have at least two years of consistent income before they approve you. This can be a problem if you’re self-employed or just starting your career, but it can be worked around. People in these camps can always provide additional assets, such as a higher down payment.

2. A Solid Debt-to-Income (DTI) Ratio

Your DTI ratio calculates how much you earn versus your outstanding debts. Your debts include bills you pay every month along with student loan or car payments and credit card bills. Add all these up, then divide that number by how much money you make monthly.

According to Investopedia, the highest DTI you can have and still qualify for a mortgage is 43%. In general, lenders prefer to see lower percentages because it bodes well for the buyer’s ability to handle their monthly payments.

3. Good Credit

Your credit history is a vital piece of mortgage approval. If you have good credit (any score above 700), it shows that you can manage and pay your bills on time, and thus are a low-risk borrower.

It’s important to check your credit report before you apply for a mortgage. This will let you know where you stand and if you need to take some time to improve your score or get any potential errors checked out.

4. Sufficient Funds for a Down Payment

Lenders look at whether you have the funds to cover a down payment – usually 20% of the total asking price for a home. This is why planning for buying a house has to include increasing your savings to cover that down payment.

However, not all loans require a 20% down payment. You may be eligible for a conventional loan or an FHA (Federal Housing Administration) loan, both of which have lower down payments, according to The Balance.

Plan Out Your Financing for Buying a Home

If you are planning on buying a house, you need to do your homework. Just one of your tasks is getting your finances in order. Pay attention to the keys to mortgage approval and you’ll be well on your way to sealing the deal.