You Ask, We Answer: How Can I Qualify for a Mortgage?

You Ask, We Answer: How Can I Qualify for a Mortgage?

If you’re thinking about buying a home in Connecticut, you’ll probably need a mortgage. And while your Calcagni Real Estate agent has plenty of recommendations for trusted mortgage lenders (just ask them for a list!), knowing what those mortgage lenders will be looking for may help you get a leg up on qualifying for one. Here are some of the most common factors that mortgage lenders look for before granting you a loan.

Proof of income

First thing’s first: Your household income will be a key factor in determining whether or not you qualify for a mortgage. There is no minimum required income needed to qualify for a mortgage, but you will need to prove you can cover the cost of repaying the mortgage loan and whatever other bills you are responsible for.

Your salary (or combined salaries, if you are applying for a mortgage with a partner) isn’t the sole determining factor, however. Other streams of income from second jobs, alimony, child support, investments, or commissions may also factor into your mortgage amount, but in general, these secondary streams will need to continue for a minimum of 2 years after closing to be considered by your lender as a factor.

Know your credit score

In addition to your income, your credit score will play a large role in qualifying for a mortgage. Lenders look at your credit score not only as a historical record of how you pay your bills but as an indicator of the risk associated with lending you money to be paid back on time in the future.

Homebuyers with high credit scores generally demonstrate that they pay their bills on time, don’t take on too much debt at a time, and understand how to budget their spending. These high scores are often rewarded with lower interest rates and a wider array of types of loans to choose from.

So, what’s the minimum credit score you should have when applying for a mortgage? A FICO Score of 620 is the minimum when applying for most mortgages. However, if you have a slightly lower score—say, 580—don’t lose hope! You may still qualify for a government-backed loan called an FHA loan, which has lower standards for credit, income, and debt that you may be carrying. And, if you’re in the military, you may qualify for a VA loan, which also requires a minimum FICO Score of 580.

List of assets

Sure, your mortgage lender wants to make sure your income is steady. But in the event that you lose your job or have another emergency, they can still recoup the money they’ve lent you. That’s why they’ll ask for a list of your assets when you apply for a mortgage. Assets can include stocks or mutual funds, retirement accounts like a 401(k) or an IRA, checking and savings accounts, or CDs.

What’s your DTI?

When a mortgage lender decides if you’re a candidate for a mortgage, many factors are taken into consideration. In addition to your income, assets, and credit score, they want to understand your DTI, or debt-to-income ratio. A DTI tells mortgage lenders how much of your gross monthly income is used to pay your monthly bills.

Want to know your DTI? Add up all your recurring monthly payments. This may include student loans, credit card payments, etc. Divide this total of monthly expenses by your pre-tax regular income. Finally, multiply this number by 100, and that’s your DTI. For most mortgages, you’ll need a DTI ratio of 50% or less.

Primary vs. secondary residence

One more factor when applying for a mortgage: Notifying your lender if you’re purchasing this property to use a primary residence. If you’re seeking a mortgage for a secondary residence or an investment property—i.e., a vacation home—you’ll most likely need a higher credit score, need to meet different debt standards, and will need more money for a downpayment.

By working to improve your credit score, pay down your debts, and understand what mortgage lenders are looking for, you’ll be in much better shape to purchase your Connecticut home. And remember, whatever questions you have, your Calcagni Real Estate agent can help answer them!


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