How to get approved for mortgage - loan approval help
How to get approved for mortgage - this is the question asked by the millions of perspective home buyers today, in particular the first timers, because this is the outstanding time to purchase a home, but a difficult one to get approved for a home loan. There are three major items which will make or break your mortgage approval - credit, income and assets. Based on them, you can get approved for a mortgage loan on the best possible terms or on not so good terms, or receive credit denial. Here, we offer some help - read on ...
Credit
The process begins with a lender requesting your credit scores from the 3 major credit agencies - Equifax, TransUnion and Experian. Each agency issues its own credit score based upon your credit history and credit utilization. Credit scores range from 350 to 850. Things has changed quite a bit and lenders wants to see higher scores. Seven years ago, the minimum credit score for a mortgage was 520, three years ago it was 620 and these days it is 640.
In order to get a mortgage approval, lenders wants to see at least three established accounts on you credit report. Called trade lines, they must show at least two-year credit history. Car, home and student loans as well as credit cards and certain utility bills will work. For a good credit score to purchase a home, you should pay on time and pay off credit cards every month. Otherwise, you can miss payments, rack up credit card debt and have bad credit score - then you may live in your parents basement the rest of your life.
If you don't have credit history, apply for a major unsecured credit card, Visa, MasterCard, American Express or Discover. If you get approved, wait 6 to 8 weeks and apply for another until you have three. If you get denied, obtain three secured credit cards to establish credit.
Before applying for a mortgage, pay off all you credit cards and don't make any large purchases like a car or boat, because that may negatively impact your debt to income ratio which we explain later.
Income
Sufficient income is the second criteria that you need to get approved for a mortgage. A lender will take a look at your full housing payment, known as PITI - Principal, Interest, Tax and Insurance. The PITI should not exceed 38 percent of borrower gross income. This is also known as front debt to income ratio. But the most important percentage, crucial for approval is ratio between your PITI plus all recurring monthly expenses and gross income, called back debt to income ratio or DTI. This one should nor exceed 45 percent today, though some lenders accept 50 percent DTI with high credit scores. A borrower with average credit score of 740 have much higher chance for mortgage approval if his or her back end debt ratio is at 45 percent or slightly higher than a borrower with 640 or even 700 credit scores.
If you work for someone and receive W2 form, then you must provide pay stubs covering last 4 weeks of employment. Now, if you have an employment gap of at least six months, you must be employed for another six months before your new income can be counted to be approved for a mortgage.
If you are self employed or work on commissions, you must furnish two years of personal income tax returns. But if you own more than 25 percent of the business, you have to provide two years of business taxes.
If you are 59 or older and have significant assets that can be used to generate an income, then you can use them to get a mortgage approval.
Assets
The last item vital for a mortgage approval are your assets. The more you have, the less the risk for the bank. Liquid assets are where the money for the down payment will come and the more money you put down when purchasing a home, and the more emergency funds you have in the bank if you loose your income, the more comfortable is your bank to lend you money for a mortgage.
Lenders want to see at least six months worth of PITI in assets. They will count as follows,
- 100 percent of the balances in checking, savings and money market accounts
- 70 percent of the balances in stock and mutual funds
- 60 percent of the balances in IRA, 401(k) and other retirement accounts
Borrowers looking for an FHA insured mortgage have to meet a less stringent criteria. As we noted in the beginning, the minimum credit score for FHA loan is 640, and you will only need a down payment of 3.5 percent of a home price as well as just two months of mortgage payments in assets, not including closing costs to get approved for a mortgage. Still, buying a house without having 12 to 18 months worth of the mortgage payments in an emergency funds in today economy can lead to a financial wreck.
Qualify for mortgage after divorce - alimony and child support income
If you need to refinance mortgage after divorce, can you count alimony or child support as your income? You can get mortgage after divorce.
For the recently divorced mortgage applicant, one of the most important things is the ability to demonstrate sufficient income. To qualify for mortgage, you can count child support or alimony as a part of your income under certain conditions. Divorce is a messy procedure and credit score of the divorced is often not too good, because of money disputes, arguments of payment responsibilities over joint accounts and so on. So to show as much income as possible is imperative. What if you need to refinance after divorce?
To qualify child support and/or alimony payments your receive after divorce on mortgage application as part of your income you need to show the following,
First, you have received the payments for at least three months, and three months worth of bank statements shown this must be furnished.
Second, you will be receiving the payments for at least next three years, which is especially important when getting child support payments from your ex. To qualify child support as the income, you must show a birth certificate to prove the child is young enough for support to last for the next three years.
Third, you must furnish a signed court decree which is recorded at the county level. Without signed and properly recorded court order, neither child support nor alimony can't qualify.
The other important point is the taxability of child support and alimony. Child support is not tax-deductible for the parent who pays child support and is not taxable for the parent who receives it. The alimony which is a spousal support is tax-deductible for the parent who makes the payments and taxable to the parent who receives them.
Yet lenders don't consider tax consequences for alimony. If you receive $2,000 a month in alimony and have a recorded court order to prove it, entire $2,000 is added to your monthly income.
Thu Nov 3, 2011 02:11AM | Copyright: www.bad-credit-advisor.com | More in Mortgage | Comments (0)
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