Qualifying for a mortgage involves the ability to obtain a loan from a financial institution. Income and age are not the only criteria that determine this. Eligibility is based on various criteria including employment history, loan type, credit score, and property value.
Learn about the factors that lenders consider when reviewing a mortgage application.
1. FICO Score
Your credit score is determined by your payment history on previous loans, the number of credit inquiries, and the length, type, and frequency of past loan payments. The lower your score, the lower your chances of getting the desired loan. Typically, a credit score of at least 620 can guarantee loan approval, but keep in mind that with a score below 700, you may have a higher interest rate.
Buying a home with a low credit score means you will pay more over the life of the loan. Therefore, try to improve your score by paying off debts, making timely payments, and avoiding applying for other credit before getting a mortgage.
2. Debt-to-Income Ratio (DTI)
The debt-to-income ratio represents the amount of debt you have compared to your income. If your housing costs, car loans, and other personal loan debts add up to $2,500 per month in total, and you have a monthly net income of $5,000, your debt-to-income ratio would be 2,500/5,000 or 50%.
To qualify for a mortgage, it's recommended that your debt-to-income ratio be no more than 43%, although there may be some exceptions. Smaller lenders might allow a higher ratio, while well-known lenders often have stricter rules and may limit the DTI to 36%.
If you have too much debt, you may need to either buy a less expensive home with a smaller mortgage or make an extra effort to pay down some of your debts before getting a mortgage.
3. Down Payment
Ideally, you can put down 20% of the cost of the home when purchasing and borrow up to 80% of its value. However, most people put down a much smaller down payment.
Most financial institutions require a minimum down payment of 15%.
For more information on the costs associated with a mortgage, you can confidently consult with a credit broker. With the help of such a specialist, you can find the ideal refinancing solution for your financial goals.
4. Employment History
All financial institutions will require proof of income. Most often, they want to see that you have been employed for at least 6 months and have a steady income, either from an employer or from independent activities.
5. Property Value and Condition
Financial institutions want to ensure that the property you want to buy is in good condition and is worth the amount you are borrowing.
If you want to pay €150,000 for a house that is only worth €100,000, the financial institution will not lend you the full amount. Instead, you will be lent a percentage of the assessed value of €100,000. If a house is assessed at a lower value than what you're offering, you may want to negotiate the lowest price or reconsider the transaction, as there's no valid reason to overpay for the property.
If you want to simulate a standard credit scenario, you can use the Imobiliare.ro Finance tool.
What criteria affect eligibility?
In short, when applying for a loan, financial institutions will consider the following factors:
Loan amount
Down payment
Type of property you want to buy
Your employment history
Previous debts
Debt-to-income ratio
FICO score
How can you test if you meet eligibility requirements?
Unlike direct discussions with bank representatives, a credit broker's role is to provide you with consultancy services. They will not only present you with the various offers available in the market at a given time but also help you understand which financing solution is most suitable for you, taking into account your specific financial situation.
Request a meeting with a credit broker directly through Imobiliare.ro Finance and you'll enjoy a relationship based on trust and mutual respect.
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