How Do I Qualify for a Home Loan?

Buying a home is probably the largest purchase you will make. So, for most, buying a home begins with determining if you qualify for a home loan. 

You need to meet several requirements to qualify for a home loan. In this article, we walk you through everything you need to know. Let’s get started. 

Home Loan or Mortgage Loan?

Many venturing into property ownership for the first time don’t realize there is a difference between a home loan and a mortgage loan.

What Is a Home Loan?

A home loan is secured through a lender specifically to purchase or build a home. If the borrower defaults on the loan by failing to make payments, the lender takes possession of the property and sells it to recoup their losses.

What is a Mortgage Loan?

A mortgage loan is also a loan that uses the property as collateral, but the borrower can use the loan in any way they wish. It can be used to build or purchase a house, make repairs, build a garage, or even take a vacation. It is up to the borrower. But, just like the home loan, if the borrower defaults, the property goes to the lender. 

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How to Qualify for a Home Loan or Mortgage

What are the mortgage requirements you need to meet? Lenders look at several factors to decide if you qualify for a home loan. They include: 

  • Income
  • Assets
  • Debt
  • Credit Score
  • Property Type

Minimum Income for a Home Loan

There is no minimum income for a home loan. But that does not mean your income is not a factor in your potential lender’s decision. They want to ensure you have enough income to make your payments and still have enough left to pay your other monthly bills.

Lenders look at all your income, not just what you bring home from your job. Do you receive alimony, child support, or investment income? Everything is considered when deciding if you qualify for a mortgage or a home loan.

Assets

Along with your income, lenders want to know about any other assets you may own. Assets are anything you own of value. There are two types of assets, physical and non-physical.

Physical assets include things like boats, RVs, or jewelry. Non-physical assets could be 401ks, stocks, or bonds. It’s important to let your lender know all your assets. 

Amount of Debt

Lenders check to see how much debt you are carrying. They want to make sure your income can cover paying of your mortgage or home loan as well as your other debts.

The lower your debt-to-income ratio is, the better you look to lenders. 

Credit Score

If you have a low credit score, consider increasing it before applying for a home or mortgage loan. High credit scores tell lenders that you pay your bills on time and do not carry a lot of debt. 

The higher your credit score, the more likely you will have a lower interest rate on your home loan or mortgage loan. 

Property Type

To qualify for a home loan, the type of property you plan to buy makes a difference. Lenders know that if you are purchasing the home you will live in, you are more likely to make payments a priority.

If it’s a secondary property, like a vacation home, you will most likely need to meet higher income and credit score standards. 

How Much Down Payment Should I Make?

A down payment is the money you put toward the purchase of your home out-of-pocket. Most lenders prefer you to make a down payment of at least 20% of the home’s price. 

What Is a Mortgage Calculator?

A mortgage calculator helps you determine your monthly mortgage or home loan payment. Enter your loan amount, down payment, interest rate, loan type, and length of time you will have your loan. The calculator takes that information and gives you your monthly payment amount.

A mortgage calculator is great for helping you decide how much of a down payment to make. Usually, the higher your down payment, the lower your monthly mortgage payment. 

Conclusion

To qualify for a home loan, you need to meet certain criteria. Your income must cover your mortgage as well as your other monthly expenses. 

You need a good credit score. The better your credit score, the more likely you will qualify for a mortgage loan, and your interest rate will probably be lower. Plus, lenders consider if the property you are buying will be your primary residence.

MortgageWorks offers financing for new home purchase, refinance, home equity, investment property, construction and a wide variety of loan program options to fit your every needs.

Servicing the state of California and the entire Coachella Valley, including Palm Springs, Cathedral City, Rancho Mirage, Indian Wells, Palm Desert, Desert Hot Springs, La Quinta, Indio and Coachella. Call Art today @ (760) 883-5700 


* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.