As we have discussed here earlier, buying a home is exciting, but it can be overwhelming too. Especially when it comes to the part of getting financing. It can actually be kind of scary if you listen to all the horror stories the past few years of foreclosures all over the place. Now, everyone is talking about how lenders are funding loans again, but they are being very picky and making it tough for a new home buyer.
So how do you know if you will quality for a home loan? You don’t want to go out and find your dream home only to have a lender squash your dreams quickly. Well we want to give you a little help here and tell you what you can expect and what you should be able to prove and provide. First you need to know that there are 3 C’s when it comes to mortgage lending.
- Credit
- Capacity
- Collateral
These are 3 areas that lenders are looking at closely and for your best bet on being approved for a mortgage loan, you need to be strong in 2 of the 3 C’s. So just what do these 3 C’s mean to you?
Credit: You need to have some credit history and you need it to be good. While there are lenders making loans for those with less than perfect credit, those home buyers are going to pay a premium for having that less than perfect credit. Acceptable minimums as good credit are:
3 trade credits with one of them at least 2 years and credit lines of $2500 or more
The longer you have had credit established, the better and never have a balance more than 50% of your credit limit on any credit card, installment loans such as student loans, your car note or any mortgage loan you may have already.
Mortgage loans hold more weight than any other type of loan
Any late payment on a mortgage loan will have more negative impact than late payment on other loans.
Capacity: This is the income to loan ratio, in other words your ability to make payments and repay the loan. You will need verifiable proof of income that shows you are able to make your payments.
Regular income from employment, bonuses, commissions or other income
Collateral: This is your verifiable assets. These are funds you can use should the need arise to repay your loan. Collateral can come from one of the following:
- 401k Investment Fund
- Stock Holdings
- Savings
- Annuities and Bonds
- Investment Properties
- Promissory Notes
So if you are in the market for a new home and have been unsure of the lending process these days, this guideline should help you determine if you will qualify for a loan. These aren’t hard and carved in stone as every lender will have their own qualifications and requirements. As you shop around for a lender, ask what is required to loan approval and what is needed in way of proof.
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