Getting Pre-Approved For A Mortgage And Start Shopping For A Home

by Peter Bieda

This Article Is About Getting Pre-Approved For A Mortgage And Start Shopping For A Home

So, you are ready to buy a home? The home buying journey starts with qualifying for a mortgage. You are ready for a mortgage?  Most people do not have the cash to buy a home therefore they take out a mortgage. A mortgage is a home loan. A mortgage consists of principle, tax, insurance, sometimes mortgage insurance and homeowners association fees. You will want to read this so you can be aware of what is needed to obtain a mortgage loan.

Getting Pre-Approved For A Mortgage: Consulting With A Loan Officer To Get Qualified

Getting Pre-Approved For A Mortgage

Home Mortgage Lenders have rules that apply to all different types of loans.  You need to be aware of what those rules are and what is needed. The Lender evaluates your Income to make sure you will have enough income coming in to pay your mortgage along with all the debts you have at the time you apply; this shows the ability to pay your mortgage.  They also review your credit to see how willing you are to pay them back for the home mortgage loan.  Next, they will review your collateral by ordering an appraisal and they will also look at your funds to see if you have enough to close on the home but also enough for after your loan closes. You will be providing proof of all these items which constitutes plenty of paperwork on your part.

Preparing Getting Pre-Approved For A Mortgage And Starting The Home Buying Process

You will want to know all these things so you can get yourself ready to get a home mortgage loan.  This means gathering all the documents to prove the above items.  These items you will need to turn into the Lender so that they can get you qualified for a home mortgage loan and you can go out looking for your dream home.

I know this sounds like a lot, but I will explain everything to you so that you will know exactly what you will need to get approved for the home mortgage.

Let’s go over the different loan categories.  You basically need the same paperwork for each loan category however the qualifications are different for each loan category.

Government Loans- FHA, VA, and USDA are government-backed mortgages.  They are a loan that is insured by FHA, USDA or VA.  FHA is Federal Housing Administration.  VA is Veterans Affairs and USDA is the US Department of Agriculture.  They protect the lender in the event a borrower can’t repay back the loan.  This reduces the risk to the Lenders.

Conventional Loans- This is a loan type that is not insured by the government.  Conventional financing is with Private lenders and the insurance is usually paid by the borrower.  You will need at least a 3% down payment but most people put 5% or more down.  Again the down payment can come from a gift from a relative, your checking/savings accounts, 401K or IRA, Stocks or bonds, or even your Trust account.  However, if you don’t put down 20% on this loan you will pay private mortgage insurance. Private mortgage insurance will stay on this loan until you owe 80% or less.  Some lenders won’t drop it until you owe 75% or less. Private mortgage insurance protects the Lender regarding foreclosure.

Now with these two categories, you have five loan types.

VA Agency Guidelines VA Loans

VA-The US Department of Veterans Affairs is provided by a VA-approved Lender. They are guaranteed by the US Department of Veterans Affairs. The down payment is $0.00 however you will have a funding fee most likely. This fee ranges from 1.25% to 3.3%. You don’t have mortgage insurance on a VA loan. This loan is only available for Veterans, Service Members, and select military spouses. Their qualifying requirements are a little easier than other loans. But you do have an upfront one-time mortgage insurance fee. If you are a disabled vet this fee may be waived. They have been around since 1944. VA doesn’t have a back-end ratio. As long as you get an approve/eligible per automated underwriting system on VA loans, your approval is good to go at Capital Lending Network, Inc. CLN Mortgage Group has no lender overlays on VA loans.
Capital Lending Network, Inc. has no lender overlays on government and conventional loans. We just go off the automated findings of the AUS

Getting Pre-Approved For A Mortgage: HUD Agency Guidelines On FHA Loans

HUD Agency Mortgage Guidelines On FHA Loans:

  • HUD is the parent of FHA- Federal Housing Administration
  • FHA loans are provided by an FHA approved Lender
  • They allow people with lower incomes to buy a home
  • This home will need to be occupied by the people applying for the house for at least 365 days
  • The risk is much higher on this loan as you only need to put down 3.5% of the sales price of the home you are buying, as opposed to somebody who puts down more money
  • Therefore, you have monthly mortgage insurance which is part of your mortgage payment, and an upfront one-time mortgage insurance fee
  • This is 1.75% of the loan amount and is included in your home loan
  • This insurance protects the lender if you choose to not pay the home mortgage loan back
  • This program has been around since 1930
  • You can get a maximum of a 46.9% front end and 56.0% back end debt to income ratio on an approve/eligible per automated underwriting system on FHA loans
  • As for ratios on manual underwriting, the front end should be about 31% and the back end can go up to 43% DTI with zero compensating factors
  • 37% front end and 47% back end with one compensating factors
  • 40% front end and 50% back end with two compensating factors
  • Credit scores can be as low as 500 with 10% down
  • The down payment can come from a gift from a relative, your checking/savings accounts, 401K or IRA, Stocks, or bonds or even your Trust account

You cannot take out a personal loan for a down payment. However, the down payment can be gifted by a family member.

USDA Agency Mortgage Guidelines On USDA Loans

USDA- United States Department of Agriculture Home Loans:

  • USDA loans are provided by a USDA approved Lender
  • They are guaranteed by the United States Department of Agriculture
  • This loan is for homes in certain areas only
  • The down payment is $0.00
  • They do have an upfront fee which is 1% of the loan amount
  • There is mortgage insurance of 0.35% of the loan balance which is included in your monthly mortgage payment
  • When it comes to ratios you are looking at a front end of 29% and a back end of no more than 41%

As for credit score, most lenders will tell you it needs to be a 640 score, but we can do less.

Fannie Mae And Freddie Mac Agency Mortgage Guidelines On Conventional Loans

Fannie Mae And Freddie Mac Agency Mortgage Guidelines On Conventional Loans

Conforming Loans:

  • Conventional loans are often referred to as conforming loans
  • Lenders sell conventional loans to Fannie Mae and Freddie Mac
  • Fannie Mae and Freddie Mac only purchase conventional loans that only conform to Fannie Mae and/or Freddie Mac Agency Guidelines
  • Therefore, they have certain guidelines
  • Conforming is a conventional loan that conforms to the financing limits
  • The limits are set by Federal Housing Finance Agency
  • As for debt ratios, you can not exceed a 50% back end ratio
  • There is no front end debt to income ratio caps on conventional loans
  • This would be considered the perfect loan

You will also need a credit score of at least 620.

Getting Pre-Approved For A Mortgage: Non-Conforming Loans

Non-Conforming Loans:

  • Non-conforming loans are mortgages that do not conform to Fannie Mae and/or Freddie Mac Agency Mortgage Guidelines
  • This loan has a higher loan amount than conforming
  • It does not conform to the financing limits
  • FNMA and FHLMC do not buy these loans

Capital Lending Network, Inc. are experts in originating and closing non-QM and alternative non-conforming loans.

Getting Pre-Approved For A Mortgage: How Much House Can You Qualify

Debt To Income Ratio- This is regarding your income and your debts. Add up all your monthly income and all your monthly debts. Figure out how much of a mortgage payment you feel comfortable with. Take the mortgage payment and divide it by your monthly gross income. This is your top ratio. Then take our mortgage payment plus our monthly debts. Now divide that by your monthly gross income. This is your bottom ratio. Remember your debts equal your auto loans, credit card loans, student loans, and child support.

Getting Pre-Approved For A Mortgage: Qualifying For A Home Loan

Basic items you will need to obtain a home loan are income, fair credit, down payment, and your ratios need to fall within guidelines. As for a down payment, you might choose a loan that doesn’t require a down payment. However, you will need to put money into escrow to show good faith to the seller. You most likely will need money for the appraisal and any inspections you choose to do.

The Importance Of Income And The Ability To Repay

Your income needs to be verifiable. This means your bank statements show the following:

  • deposits
  • a salary from your employment
  • commission income
  • self-employment income
  • Child support income
  • Alimony income
  • Foster care income
  • Social Security Income
  • Veterans income
  • Interest income
  • Retirement income
  • Partnership income
  • S. Corporation income
  • Corporation income
  • Military income
  • Rental income
  • Seasonal income
  • Unemployment
  • Tip and bonus income

Most lenders want proof of 2 years of income. You will then need to provide Tax Returns, W2s, 1099s, pay stubs, benefits letters, and bank statements.

Getting Pre-Approved For A Mortgage: Importance Of Credit Scores And Payment History

Importance Of Credit Scores And Payment History

Now let’s talk about Credit reports.

Did you know the credit reporting scores are between 300 and 850. If your score is below 560 this means you have poor credit. Most lenders won’t be able to help you besides us. If your score is above 560 but no higher than 679 then you have fair credit and can get a mortgage but the rate won’t be as good as if your score was 680 or higher. 680-739 is considered very good credit. 740-799 is excellent credit and over 799 is exceptional!  Credit reports show your history, the amount of credit that is available to you, the different types of credit you have, the age of the credit, and how many creditors have investigated your credit within the last 24 months.

Importance Of Timely Payments In The Past 12 Months

If you have a late payment this affects your score. Collection accounts, Charge offs, Bankruptcy, Foreclosure, short sales, and Judgments are also sore spots on your credit. Whatever your credit limit is you should only owe 30% of what is given to you. This helps increase your credit score. Types of credit are student loans, auto loans, mortgages, and credit cards. Your score is generally higher if you have different types of credit. The longer you have good credit the better your score will be. As for Inquiries, you want the least amount of possible of these.  Otherwise in a short period, it looks like you are trying to get a bunch of available credit.

Benefits To Buying A Home And Ownership

Buying a home is your way to obtaining equity among other things.  Equity is how you build wealth! When you own your own home, you have a pride of ownership.  With ownership you could attach a patio to your home if you wanted to, you can decorate your home how you want and you can paint your home when and how you want. Owning your own home gives you stability for your family.  Did I mention that the interest that you pay on your home is a tax write-off?  You can also write off property taxes.  There are other tax advantages such as excluding Capital Gains and at some point, you can take out an equity line on your home to pay off your credit cards and this would be a tax write-off as well.  The bottom line is buying a home has a lot of benefits for you!

We’re in this together, and we’re here for you!

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Robin Williams December 17, 2020 - 12:21 am

Looking for a home loan. Husband and I have low credit scores for late payments on credit cards. The past year our payments have been perfect. Credit just isn’t improving fast enough .

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