Qualifying for a Mortgage

Team Simplist
Simplist Mortgage: Qualifying for a Mortgage
Oct 15, 2019

You may be saying to yourself, “Of course I want to own a home, but I wonder if I even qualify.” We can help.

Let’s start with the basics. These are the items you’ll need across the board to secure most types of mortgages:

  • A credit score of at least 620
  • Verifiable income
  • Cash to cover a down payment
  • Cash to cover closing costs
  • Reserves (savings or liquid assets)
  • Supporting financial documentation

The scale of these qualifications varies based on the type of home loan you hope to secure. Depending on your financials, location, and other key qualifiers, you may be eligible for a variety of loan programs. And more choices = more freedom and flexibility for you to get your perfect mortgage.

Let’s check out some available loan programs.

FHA — The underdog’s loan.

Federal Housing Administration (FHA) loans are designed for low- to moderate-income borrowers and come with unique concessions and perks. These loans are issued by an FHA-approved lender and are insured by the Federal Housing Administration. They allow for lower credit scores than conventional loans — as low as 500 in some cases. That said, generally speaking, lenders like to see a credit score of at least 580 with a minimum 3.5% down payment. If your credit score falls between 500-579, you must put up a down payment of 10%. Another perk? Your entire down payment can be a gift from family or a grant from a down-payment assistance program. That’s something you won’t find with conventional loans, which have stricter guidelines about how you get the money for your down payment.

All of these factors make FHA loans alluring to first-time homebuyers. However, keep in mind that this type of loan carries other strict requirements (such as required mortgage insurance premiums) and loan limits not found in other alternatives.

Conventional — The 9 to 5-er’s loan.

This is your plain Jane standard loan — no special qualifying programs. Conventional loans require a minimum 620 credit score, though a higher credit score will unlock lower interest rates. Lenders ideally like to see a 20% down payment, though it can skew as low as 3%. Mortgage insurance is required with down payments less than 20%.

Lenders require two years of employment history with documentation. The debt-to-income ratios can be flexible depending upon your credit score and down payment. As always, the better your score, and the higher the down payment, the better the terms.

Conventional loans can be used for primary residences, vacation homes and investment properties — a noteworthy flexibility to file away. Your future self will thank you.

VA — The hero’s loan.

Veterans Administration (VA) loans are for eligible veterans purchasing a primary residence. There is no down payment requirement, no minimum credit score, nor is mortgage insurance required. Additionally, though the loan is offered by a private lender, it’s partially guaranteed by the VA — that means lenders can offer you more favorable terms.

Some special documentation is required in addition to W2s and financial information. You will need a copy of your DD-214 as well as a statement of service letter signed by your commanding officer.

These loans are one small way we repay our debts to veterans, and Simplist is proud to play a small role in getting veterans into the homes they deserve.

USDA — The country loan.

USDA loans are offered to low-to-moderate-income families in designated rural areas and are meant to encourage homeownership and development therein. Though USDA loans are guaranteed by the U.S. Department of Agriculture, you don’t have to be a farmer to get one.

These loans require no down payment and are for primary residences. If you think you might qualify for a rural development loan, start by checking your address on the USDA online tool.

Borrowers must be a U.S. Citizen, noncitizen national or qualified alien, be able to legally incur a loan obligation and have not been banned from federal programs.

HomeReady — The city loan.

HomeReady (backed by Fannie Mae) or HomePossible (backed by Freddie Mac) programs are available to low-to-moderate-income families living in metropolitan areas. These loans require a minimum credit score of 620, but a down payment of only 3% — and that down payment can comprise gift money. The debt-to-income requirements have flexibility too. With HomePossible, you may use a non-borrower income to qualify.

Portfolio Loans — The helping hand loan.

Portfolio loans are made by specialty lenders (usually smaller banks and credit unions) and are not sold to anyone else; instead, these loans are kept on the lender’s portfolio. Whereas loans made by larger lenders may be sold after only a couple of months’ payments, portfolio loans are kept on the books by the original lender, who continues to earn interest on the mortgage. What does that mean for you?

These loans are subject to more flexible underwriting guidelines and allow mortgage professionals to make common sense approval decisions — even if you don’t check all the standard qualification boxes. These are ideal for foreign nationals, investors, and self-employed borrowers. The lender is able to take a deep dive into the personal history and circumstances of the borrower, often giving them a chance when a larger lender would not.

Bottom line:

Consider your unique qualifiers and individual needs, and seek out the program that works best for you. There are a multitude of loan programs and assistance available to first-time homebuyers. And, whichever loan you choose, Simplist is here to help you get the mortgage of your dreams.

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