When you decide to buy your first home, it’s an important step in your life. This decision will affect you and your family for years to come. 

Buying a home isn’t like renting an apartment. After 12 months, you don’t have the option of terminating your lease and moving on. When you buy a home, you’re committing for the long haul. 

That being said, when you find the right home, it’s one of the most exciting and intimate moments you can share with your household. The only question is, can your qualify for your first mortgage?

The elation of finding the perfect house in the right neighborhood can quickly evaporate if you don’t qualify for the home loan. We don’t want to see you suffer such a devastating disappointment. 

Keep reading for our quick guide on how to qualify for a mortgage.

Your Budget

Before you start house hunting, you need to assess your budget. How much can you afford to spend on a home? 

This figure isn’t dictated solely by your monthly mortgage payments. There are a lot of other expenses that come along with homeownership. These include:

  • Property taxes
  • Homeowners insurance
  • Utilities and services
  • Common area maintenance/HOA fees
  • Home maintenance and repairs (typically $1,100 or more a year)
  • And more

When calculating your potential home costs, make sure you accountant for these added expenses. You should never sacrifice your financial stability to move into a home that’s too highly-priced.

Debt to Income Ratio

When qualifying for a mortgage, the bank will also want to ensure you can comfortably afford your payments. After all, it’s their money on the line. If you stop making payments, they’re the ones who will suffer. 

As such, when you apply for your first mortgage, you need to provide proof of your household income. This can be in the form of bank statements or pay stubs from your employer.

Your total income will be weighed against the total monthly debt payments you’re responsible for. These monthly payments include car loans, school loans, hospital bills, credit cards, personal loans, and more. 

Generally, most lenders won’t approve a loan if your debt to income ratio is higher than 43%. In other words, if you make $4,000 and month and owe more than $1,720 for in debt payments, you’re over the line. This calculation includes your potential mortgage payments.

Credit History

Your credit history is equally important when applying for a mortgage. If you’re wondering “Do I qualify for a mortgage?” the first thing you should do is check your credit score. 

Your credit score will determine the loans for which you qualify. Different loans accept different scores. For example:

  • Jumbo loans require a score of 700
  • VA loans and USDA loans require a score of 640
  • Conventional home loans require a score of 620
  • FHA loans require a score of 500

However, the proper credit score alone will not qualify you for your first mortgage. The lender will also look at your history, which includes your debt to income ratio, rent history, payment history, and more.

Down Payment

One of the hardest aspects of qualifying for a mortgage is coming up with the required down payment. As with your credit score, the required down payment varies from loan to loan. 

Down payments are based on the total value of the home. For example, if you buy a home for $200,000 with an FHA loan requiring 3.5% down, you’ll need to come up with $7,000 to procure the loan. 

VA loans offer the lowest downpayment option. Applicants are able to get a loan with zero money down. However, to qualify, you must be a military veteran. 

The next smallest requirement comes from government-backed FHA loans. These loans were established to help people with lower credit scores and incomes find home loans. FHA loans require a minimum of 3.5% down. 

Conventional home loans typically call for anywhere between 3% and 20% down. For most loans, if you put less than 20% down, however, you’ll be forced to buy mortgage insurance. 

Assets

Learning how to get your first mortgage can take time if you have little or poor credit. However, the lender also takes your assets into account. 

If you have valuable possessions, you can use them in the event of a financial emergency. The lender would expect you to use/sell these assets to pay your mortgage payments. 

Possible assets include things like savings accounts, stocks, mutual funds, IRA accounts, retirement accounts, other properties, and more. If your loan qualification is contingent on your assets, you’ll need to provide proof of your ownership and the asset’s value. 

 

First-Time Home Buyer Programs

Most states have first-time homebuyer programs that offer assistance to people looking to apply for their first mortgage. These vary from state to state. 

However, popular programs include:

  • Improved rates for specific professionals (doctors, nurses, police, firefighters, educators, etc.)
  • Down payment assistance
  • Closing cost reductions
  • And more

Ultimately, these programs are designed to make it easier for people to get approved for their home loans. Sometimes the home loans are restricted to certain properties, locations, and price ranges. 

Qualified Co-Signers

Finally, learning how to qualify for a mortgage might mean getting help. If you don’t qualify for the loan by yourself, you can always ask someone to co-sign on your home with you. 

However, you must understand what a monumental favor this is. The person who co-signs will be equally responsible for the mortgage. If you miss payments, the lender will seek compensation from your co-signer.

Co-signing on the loan will also affect their credit score and total debt to income ratio. Being a co-signer on your home might prevent them from procuring their own loan or line of credit in the future. 

Ideally, a co-signer would be your spouse/significant other, a parent, or a grandparent. 

Looking to Get Your First Mortgage?

Are you ready to apply for your first mortgage? If so, we want to help. Contact us today to apply for a loan.

However, if you’re still uncertain about which direction to head in, we can help point you on the right path. We offer helpful mortgage guidance for new home buyers like you.