Can I Qualify for a Home Loan?
If you’re a first-time homebuyer or are looking to reenter the housing market, you may be left wondering if you are able to qualify for a home loan. There are many different factors that go into your potential approval for a home loan, however, in general, your Debts, Income, Credit Scores, and Down Payments are what will help you either be approved for a loan or you’re your application rejected.
You have to make sure that your debt-to-income ratio is low. Any debt will need to be reported on your loan application. This includes credit card payments, car payments, student loans, etc... As a rule of thumb, your debt-to-income ratio must be below 28%. This means that 28% of your income is allowed to be allotted to your monthly debt payments, of course, lower is always better. Some loan programs do allow up to 48% but you will be paying higher interest rates and fees. (These loans are rare and not available in all areas)
Adding to the 28% that is mentioned above, it is recommended that your total monthly payments be a total of 36% of your income, this includes your monthly mortgage as well as other debts such as those mentioned above. While some lenders may allow for a higher debt to income ratio, the 36% is highly encouraged.
While some lenders are more flexible with credit scores when it comes to being approved, you always want to try to boost your credit prior to applying for a home loan. 580 is generally the lowest score that is allowed, however, that will generally be accompanied by a higher interest rate. Scores should be at least 620, however, 740 and higher is highly recommended and will help you obtain better financing options.
The amount you put down on a home can often help you qualify. For example, sometimes putting a larger sum or percentage down will allow for your debt-to-income ratios to be approved, whereas putting less down could cause you to fall above the recommended 36% debt-to-income ratio. Related: How Buyers Can Save for a Larger Down Payment
It is important to ensure that you discuss your income and expenses in-depth with your significant other or a financial advisor in order to determine if you are in a position to purchase a home. Fully understanding your monthly debts, possible assets, and down payments is a huge key in fully grasping your personal budgets which can help ensure that you only look for homes that are within a price range you can afford.
If you’re currently searching for a new home, are ready to partner with a qualified seller’s agent to list and market your property or if you have any questions regarding St. Louis Real Estate, please feel free to contact our office at any time.