There are several key criteria that all relate to getting approved for a loan. Mortgage lenders will look at many different factors when you apply for a loan, but the most important ones are:
- Your credit score at the time of application.
- The amount of debt you're currently carrying.
- Your income, relative to the amount you want to borrow.
- The size of the down payment you can make.
What kind of credit score do you need to get a home loan in 2010 real estate market? Well, this will vary depending on the lender you choose and other factors. But there are certain averages.
If you want to get approved for a mortgage loan, you'll probably need a credit score of 620 or higher. In fact, Fannie Mae (an organization that buys mortgage loans from direct lender such as Wells Fargo) recently changed their underwriting guidelines to require a higher credit score. They raised their minimum score requirement from 580 to 620. This means that lenders who want to sell their mortgage loans to Fannie Mae have to use that same minimum score as a cutoff point. Not all mortgage lenders sell their loans into the secondary mortgage market like this, but many of them do. So it's reasonable to say that 620 is a good baseline for mortgage qualification. In other words, if you want to get a home loan, you'll probably need a credit score of 620 or higher.
That covers the credit score side of things. When you apply for a mortgage loan, the lender will also look at something known as debt-to-income ratio. This is a comparison between your monthly income and the amount you pay toward your debts each month. For example, if you spend half of your monthly income on the various debts you owe, then your debt-to-income (DTI) ratio is around 50%.
This is a factor that varies from one mortgage lender to the next. Some of them are comfortable with higher DTI ratios, while others are less willing to allow them. Just remember that this is one of a number of factors a lender will use when considering you for a loan. So, for example, if you have few debts but a lot of other problems, you could still get rejected. You have to consider the big picture at all times.
The size of the down payment depends on the type of mortgage loan you choose, the lender's underwriting guidelines, and other factors. If you use the always-popular FHA home loan program, you could put as little as 3.5% down on the mortgage. Some geographical areas qualify for USDA financing 0 down and no mortgage insurance. Contact your real estate professional to discuss USDA eligible homes in your area. If you use a conventional mortgage loan (one that is not backed by a government agency like the FHA), then you will have to make a down payment of 5% or more. Additionally, if you want to qualify for a mortgage lender's lowest interest rates, there's a good chance you have to put 20% down.