Are you ready to become a homeowner? Before the house-hunting begins, it’s good to know how much house you can afford. In other words, how much money is the bank willing to lend you? To find out, look into getting preapproved for a mortgage from multiple lenders. Here are the requirements to qualify for a home loan.
Healthy Debt-to-Income Ratio
You may think your finances are ready for homeownership, but the bank must agree with you before they will lend you money. When assessing your financial situation, lenders look at more than just how much money you make—they also account for your housing expenses and other debts. This is known as your debt-to-income (DTI) ratio.
Be aware that most lenders will hesitate to approve your loan application if your mortgage payments (including principal, interest, property taxes, HOA fees, and insurance) exceed 28 percent of your income. Lenders also consider any car loans, student loans, credit card debt, medical expenses, child support, alimony, and other financial obligations. You are more likely to qualify for a home loan if your combined debts, including your mortgage, don’t exceed 36 percent of your income.
The most important part of your credit report is your credit score. This number determines your eligibility for a home loan and affects your interest rate. Pulling your credit report gives lenders a glimpse into your bill payment history and reveals any outstanding debts. If you routinely pay bills late or have defaulted on loans in the past, consider taking a year to improve your credit score before buying a house. This way, you may qualify for a loan with a lower interest rate and more favorable terms.
The Right Documents
Here are the documents you should prepare to present to a lender when applying for a home loan:
- W-2s and tax returns from the past two years
- Pay stubs from the past 30 days
- Names and addresses of employers from the past two years
- Bank statements and asset account statements from the past 60 to 90 days
- Information on car loans, student loans, credit cards, and other debts
- Proof of pension income, alimony, child support, Social Security or disability benefits, divided earnings, and bonuses, if applicable
- Profit and loss statement (if self-employed)
- Gift letters (if funding your down payment with a financial gift)
- Rental history
- Photo ID
Once you have been preapproved for a mortgage, it’s time to start house-hunting! Vutech | Ruff, Corcoran Global Living can make finding your next home as easy and stress-free as possible. We make sure you understand what’s happening and what needs to be done each step of the way. Meeting your unique needs and desires is our top priority. We know that buying a house is a long-term investment, and we want you to be happy with your decision! For help shopping homes for sale in Columbus, Ohio, please call us at 614-897-0618 or contact us online.