ired of the hassles that come with renting a house, and are you ready to actualize the dream of buying your own home? A mortgage then is about to be your new best friend, but before getting deeper into that; these are the minimum requirements for a mortgage.
One of the biggest mistakes people looking for mortgages make is not going to houses they can afford. This leads to a quick denial of a mortgage because lenders the fear such people won’t be in a position to pay their mortgage. The minimum requirements for a mortgage demand that you determine the house you can afford based on your income and expenditure before approaching your lenders. With the knowledge of your price range, the amount you ask for will be within the limits your lenders are willing to offer you and this alone will make them consider your mortgage.
Have A Down Payment Ready
Though this is not necessarily a requirement, it is advisable always to have a down payment when you meet your lenders. The truth is many people are also looking for loans. This means that your lenders have very many more clients looking for a mortgage. Since your lenders are most definitely looking for profit, only the mortgage requests that seem to have the least amount of risk will be successful. The minimum requirements for a mortgage call for a down payment of at least 10% of your house value to increase your chance for a mortgage.
Debt To Income Ratio
The truth is many of us have other loans we are paying while we are still looking for a mortgage. The minimum requirements for a mortgage call for not more than 36 percent of your gross monthly income going to settle your other loans. If your debt-income ratio is above this limit, you could consider paying down high-interest credit cards to lower your ratio. Most lenders will however not consider your request with ratios above 36% of your monthly income. To their business, you represent a risk that's too high to invest in.
The higher your credit score, the better the mortgage interest rates you will get. Having a credit score of 720 or above gives you mortgages with the most favorable interest rates. With credit scores of 620 and less than 20% of the house value for a down payment, you can still qualify for a mortgage. The challenge with this is that you will not qualify for the lowest interest rate mortgages. A higher credit score only assures you of the lowest interest rate mortgage. There are however lenders who cater to "subprime" borrowers. This is those lenders who lend people mortgages with less than a credit score of 720. These lenders, however, charge higher interest rates.
Your Employment History
Under this, borrowers who have been working at a particular company for more than two years get more favorable mortgages. Your consistency at work in the past is the best measure of your consistency in the future. People who hop from one job to another are very likely to become unemployed. It also points to a problem with the way they conduct themselves at work. Lenders use employment consistency to gauge your future ability to pay the mortgage. As far as employment consistency is considered, the minimum requirements for a mortgage are at least two years of employment.
For self-employed people or those working in commissions, bank statements are used to substantiate their employment history. Those who can verifiably show that they have been receiving payments for more than two or more years are liable to the most favorable mortgages.
Loan To Value Ratio
This refers to the ratio of how much the house is worth and the amount you are borrowing. The minimum requirements for a mortgage in reference to loan value ratio is that is 90% or below. With this, your down payment only needs to be 10% of the value of the house. Getting lower LTV ratio will give you the chance to get better interest rate mortgages.
The minimum requirements for a mortgage are gradually increasing given the increasing competition in the business world this will only get worse. However, getting the right information can save your thousands of dollars in interest rates. Understanding the different minimum requirements for a mortgage and achieving them can help you acquire a mortgage at very favorable rates.