As interest rates continue to skyrocket each year, it makes sense to consider buying a home soon. Here’s the second installment of the mortgage requirements for this year. We’ll be covering the best mortgage rates and what you need to have to be able to qualify.
Here are the mortgage rates today and what you need to be eligible:
Requirements for USDA-guaranteed loans
Families that generate low to moderate income are given the chance to buy their own homes through a mortgage program being offered by the U.S. Department of Agriculture. However, these loans are for homes designated in specific rural areas. Applicants are able to build or renovate and existing property, or relocate to another designated area. These areas are determined using 2010 U.S. census data.
With a USDA-guaranteed loan, even with minimal qualifications, applicants may still be able to get a loan. Since the USDA-guaranteed loan backs 90% of the loaned amount, requirements are not too strict. For automatic approval, applicants must have a 640 credit score, however, given that other requirements are also met. Those who make less than the stated credit score may also be qualified for a manually underwritten loan.
For applicants to be eligible for a USDA mortgage, they must meet requirements set by the state. These requirements vary per state, so it is best to use the USDA’s online tool to know whether your prospective home is within the designated rural area. The following must also meet the following requirements to be able to qualify for a USDA mortgage:
- Applicant must be a U.S. citizen, a qualified alien or a non-citizen national
- Applicant must be able to understand the loan terms, debt obligation, and legally binding contracts
- Applicant must agree to dwell in the property and make it the primary residence
- Applicant must not be banned from taking part in federal programs
- Applicant must be willing to meet credit obligations in a timely manner
- Applicant must purchase a property that meets all USDA criteria
Debt-to-income ratio – the typical DTI for a USDA home loan is 29%/41% of the applicant’s gross monthly earnings. Maximum DTI is set at 32%/44%, given the applicant has a credit score of 680. Higher DTIs for USDA loans are possible but only on a case-to-case basis.
Requirements for HomeReady®/HomePossible® loan
Fannie Mae handles and offers the HomeReady program and the requirements are as follows:
- Income – applicants who are in the moderate to low income bracket are the main beneficiaries of these programs.
- Down payment – there’s a minimum 3% down payment that can either come from a gift or from personal funds.
- Credit score – the minimum credit score is at 620
- Credit history – these loans are perfect for people who don’t have a credit score, meaning they don’t have a credit history. Instead of financial statements with monthly payment such as utility bill or rental payments.
- Debt-to-income ratio – applicants of HomeReady and HomePossible programs can have higher DTIs of up to 50%, given they have good credit and other factors.
Here are the requirements for HomePossible programs:
- Income – unlike HomeReady mortgage, HomePossible allows the inclusion of non-borrowed income in financial calculations. This means all people living in the household who earns a monthly wage can accumulate all their earnings as gross monthly income.
- Credit score – there’s a minimum 620 credit score to qualify
- Down payment – a 3% down payment minimum is required
- Debt-to-income ratio – the highest DTI possible is up to 43%. However, it is also possible to reach 50% DTI if credit score and income is reasonably good.
Key mortgage requirements
Before you go ahead and apply for a mortgage, you should first be able to procure necessary documents that will be required by your local mortgage lender. Here are the following requirements that are mostly needed:
- A purchase agreement that’s signed with the seller
- W-2s (including all employment for the last two years)
- Pay slips for the past month
- Bank statements for the past two months
- Two-year tax returns
- Homeowners insurance
- 1099 forms (if you are self-employed)
- Sources of income
- Additional proof of bonus income
- Pension statements
- Securities documents
- Social security
How to get pre-approved for a mortgage
It’s exciting to look for a new home. However, you should first know how much you are qualified to borrow. This will give you a good idea of the type of house you are going to look for. A mortgage preapproval is basically going through all the checks and making sure that you are indeed qualified for a loan. Here’s what you need to provide to be able to get a pre-approval from a lender:
- Identification (social security number included)
- Bank statements for the last two months (all pages included)
- Employment verification
Lenders will also be looking into your credit report. Once you have been pre-approved, it will be good for 3 months. Creditors will also take a look at your finances to see if anything has changed. For a lot of people, buying a home is one major step and a financial commitment. It is only fitting that the right mortgage is applied for. More importantly, applicants must be able to first qualify for the loans, seeking all necessary steps to secure a more suitable loan.
Want to buy a house at the lowest mortgage rates possible? Call MB Mortgage Pros today.
MB Mortgage Pros
630 Chestnut Road
Myrtle Beach, SC 29572