The Requirements You Will Need to Buy a Home!

Mortgage 101
Real Estate
No matter how much money you have, there are certain things that you will need to purchase a home. Here are the essentials in buying a house.
Published on
July 27, 2023
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Introduction

Buying a home can seem overwhelming if you're new to the process. But that's why we're here to help! By the time you finish this post, you'll know exactly what information you need to have on hand when applying for a mortgage, as well as which steps will happen during the application process. We'll start off with some good news: it's not too difficult to get approved for a mortgage loan. The requirements are fairly straightforward and few in number, but they do require that you have some solid information on your finances. Let's take them one at a time so we can demystify each one.

Credit score                                              

Your credit score is a number that represents your ability to repay loans, and it ranges from 300 to 850. The higher the score, the better your credit history has been. Most lenders will use your FICO (the most popular credit scoring system) or Vantage Score 3.0 score to evaluate whether you're eligible for a mortgage. A lender will determine the loan that best suits you for your credit and income. 

FICO scores range from 300-850:

Poor (300-629): This means that you have an extremely poor history of managing debt and have applied for many different loans in the last few years. You should not apply for any type of loan until your situation improves significantly, if at all.

Fair (630-679): This indicates that you've had some financial issues but have shown recent improvement in managing debt responsibly; however, there are still some problems with how responsibly you handle personal finances.

Good (680-719): This means that over time, you've managed personal finances responsibly and paid off more than two thirds of all debts on time (every month). You should be able to get approved for most types of loans under good terms considering current market conditions

Income and employment

Income and employment are the most important factors in qualifying for a mortgage. They are used to determine how much you can afford for a mortgage, as well as what kind of down payment you can afford.

The lender will look at your income, the amount of money that comes into the household on an annual basis. They’ll also ask about any other financial resources that might be available to you (such as investments or child support). If your monthly income is less than 40% of the median household income in your area, then you may not be eligible for certain types of loans.

Loan application
  • Don't forget to sign the application.
  • Don't forget to include all the relevant information.
  • Do not leave out any documents or records that you may have related to financial matters, such as your driver's license, social security card, birth certificate and more.
Prequalified and preapproved

Preapproved and prequalified are both terms that describe your eligibility for a mortgage. They mean that you have been approved for a loan, but haven't signed the final paperwork. The difference between these two terms is subtle.

Pre-approved means that you have been approved for a mortgage, but it doesn't mean anything about how much money you'll be able to borrow or even if there is any interest rate attached to the loan. A lender will typically only give this type of approval when they feel very confident in their ability to offer you financing within certain parameters (e.g., an interest rate).

A pre-qualification letter is more detailed than a preapproval letter and can include details on what type of property value or price range would be most appropriate based on your income and existing debts/credit score history etc.

It's better to be prepared and have a clear idea of what you need before buying a home.

Conclusion

Buying a home is a big decision. And by understanding the requirements that come with getting a loan, you’ll be prepared for whatever comes your way. Keep in mind that these are just some of the requirements needed to buy a home. Make sure to check with your lender and real estate agent to find out more details on what you need to do before buying your dream home!

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