Can I Buy a Home?

The idea of owning a home seems like a dream to many who have spent their lives renting and leasing houses, apartments, and condominiums. However, applying and qualifying for a loan does not have to be as complex as most people seem to think or try to make it. In fact, with a little research and preparation, getting a mortgage loan can be as easy as finding the right lender. What exactly is involved in applying for a mortgage loan, and what qualifications do you need to meet to be approved?

When loan officers are determining whether or not someone qualifies for a mortgage loan, they consider several factors, not the least of which are actual income and debt to income ratio. However, credit scores, previous record of payment, and willingness to meet the loan requirements and make payments are also considered. Previous payment records and any delinquencies on your credit report affect your credit score. An overextended credit ratio can also negatively affect your credit.

However, these are not the only factors taken into consideration in applying for a mortgage loan. The game is all about numbers. The more satisfactory numbers you can provide, the more likely you are to qualify for a loan or receive a larger loan upon approval. Two separate income ratios are used to determine your level of qualification for a mortgage loan.

The first is the housing expense ratio, which compares your level of income to the expense involved in paying the mortgage, mortgage insurance, property taxes, and hazard insurance. A maximum percentage is set for this per month. Though maximum rates vary by area and loan program, a typical maximum percentage of 30% of your monthly income may be spent on these costs. In order to meet this goal, a house of a lesser price may be the best option, should you not qualify on the first attempt.

The second ratio is the total expense ratio, which involved the relation of your current debts to your income. These expenses may include car payments, monthly utility bills, and other revolving debts or monthly expenses. Again, while maximum allowances may vary, a typical maximum percentage for this ration may be approximately 35%. These minimum qualifications are just the first step in the process.

Another “number” that must be considered is the amount of cash in hand for a down payment. A typical down payment requirement is 10%, meaning that a house sold for $300,000 would require cash in hand totaling over $40,000, after closing costs and other fees. If an individual does not have a satisfactory down payment, a mortgage loan may be denied. If you are significantly within the range of one of these two ratios but slightly above the other, the lending agent may be able to adjust their risk factor and approve your loan application anyway.

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