In order to be approved for a mortgage, a borrower must meet certain preset criteria. While this criteria changes from lender to lender, and from mortgage program to mortgage program, there are certain criteria that are standard industry-wide. A borrower should consider these criteria prior to applying for a new mortgage or refinancing his current mortgage.
While the requirements vary based upon the program, in most cases, a borrower needs a minimum credit score of 620 to purchase a conventional mortgage and a 580 to purchase a government mortgage. If the borrower's credit score is below that range, he may only qualify for a subprime mortgage loan.
The line items listed on a borrower's credit report greatly affect his ability to qualify for a mortgage. For example, if he has had a bankruptcy in the past, he must be dismissed from it for a full two years in order to qualify for a conventional mortgage. Additionally, if there are any judgments or liens on his credit report, those will have to be paid in full prior to the mortgage closing, or he will be denied for the loan.
Debt to Income Ratio
A borrower's debt to income ratio is another major qualification for a new mortgage debt. This ratio is calculated by dividing the lump sum of all of his monthly debt payments by his pretax monthly income. If this ratio is less than 36 per cent, he should qualify for the mortgage. Government mortgage programs have less restrictions, and a borrower may still be able to qualify for a mortgage with a debt to income ratio of 45 per cent or less.
The amount of down payment needed to close on a mortgage varies based upon the loan program. For a conventional loan, the borrower will need a minimum down payment of 5 per cent. For a FHA loan, the borrower will need a minimum down payment of 3.5 per cent. However, with both a USDA and VA mortgage, there is no down payment needed.
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