You’re looking to buy a house? Lets discuss what Mortgage Loan Officers look for when you want to buy a home.
The main topics of concern to Mortgage Loan Officers are as follows:
We want to know anything & everything about your credit history
We want to know everything about your credit history because it allows us to screen your financial habits. What this means is if you have judgements, liens, foreclosures, short sales, or bankruptcies these are all reasons to deny your case.
The reason behind this is if you were to get a home, and you had any of the conditions listed above, it would become a burden on you, and it doesn’t create a healthy environment because your financial life is in turmoil. Why add more problems by adding a mortgage payment. Financially it simply doesn’t make sense.
Also, we do look at your credit score because it gives us a gauge as to where you are on the credit totem pole, and we can usually figure out what your purchasing habits are, & how you maintain your debt obligations to others.
Some simple guidelines to learn:
- 580 – 620 Credit Score, you need 25% to 20% down payment, highest cost of points, and highest rate.
- 620 – 680 Credit Score, you need 20% to about 5% down payment, moderate cost of points and decent rate.
- 680 + Credit Score, you need at a minimum 5% but you can probably also get away with 3% down, usually lowest cost of points, and best rates based on market conditions.
We want to understand the history of your employment
This is probably the most important segment, if you don’t have an income you cannot qualify for a home period.
Now if you have consistent income from a W2 job and you’re salaried we can use that immediately since its super stable more than likely and you’re working for a company.
W2 hourly we need a 6 to 12 month history of work depending on how many hours you consistently work. 6 months can only work if you work consistently 40 hours a week or more if its less than 40 hours then it immediately defaults to 12 months of work history. (Subject to change based on government regulations)
If you’re self employed you need 2 years of taxes showing self employment to then qualify for the purchase of a home.
We want to know your current monthly expenses
Mortgage Loan Officers look at your monthly credit card spend, the minimum you are required to pay back as per your creditors and factor this into your DTI (Debt to Income Calculations).
The next item on our list to confirm is your car payment. If your car payment is $500 and you have less than 10 months left we can remove the car payment since it would not exist pretty soon. If you have more than 10 months remaining we would have to count it against your income to figure out what your DTI is.
If you have pre-existing loans, such as debt payoff loans, student loans we do have to factor them against your income the less you have in loans ultimately the more you could qualify for.
Finally if you receive child support or alimony we can award you up to 125% of the total amount received, but if you have to pay it we have to count it against your income. Ideally you would not have this as it can also make or break a case to qualify for a home.
Finally we want to know if you own any additional real estate
Own more than one house? It can either benefit or detract from your situation depending on where you are on your real estate journey. If you own a rental property (not an airbnb), for less than two years, you can utilize 75% of the total income against the total monthly liability of the rental. If you have owned a rental property including an airbnb and you can prove it via your taxes then you can use 100% of the income from the property itself which means you could qualify for more. If the rent doesn’t cover the cost of the property then it becomes a detractor. Always increase your rent year over year in order to be in line with market rents this ensures that at some point the rent will be greater than the monthly cost of ownership.
Conclusion, TL:DR
- Have a good credit score ideally above 700, DTI can go up to 50% of Gross Income if W2 or 50% of Net Income is self employed.
- Have consistent income from a job that can help you qualify
- Keep your expenses low so it doesn’t dramatically affect DTI (Debt to Income Ratio)
- If you own Residential Real Estate it can either benefit or hurt you depending on how much the rent is.
- Do not commit mortgage fraud, an example of this is when you say you want to buy a property as a primary but then immediately turn it into an investment. This is illegal and you can be persecuted.
Make sure when you speak with a Mortgage Loan Officer, that you understand the rules and guidelines. There is no sense in breaking them as you can likely end up in hot water.
Want to work with me?
Lets start a Pre-Qualification or a Pre-Approval and get into the nitty gritty.
If you’re looking at other states do let me know, I would be happy to put you in touch with a Mortgage Loan Officer located in another state.
