Qualifying for a Mortgage: What Matters?

When looking at your ability to buy a home there are a lot of misconceptions. What do lenders really care about, and what is most important when qualifying? Here are the major factors in order of importance.

INCOME

How much you make has the biggest impact on how much of a loan you qualify for. This determines if you can support the monthly payments associated with owning a home. Adding a non-occupant co-borrower is one way to increase your qualifying income and expand your buying power.

DEBTS

On the flip side of income are your current monthly liabilities. These count against your qualifying income. Auto-payments are the most common thing hindering first-time homebuyers. Think carefully if you are considering buying a car before buying a home. Student loans or medical debt on the other hand have a very minimal impact, if any, on your ability to qualify.

DOWN PAYMENT FUNDS

First-time homebuyers can buy with as little as 3-3.5% down. There are also down payment assistance programs that can allow for an even lower down payment. The more you put down the smaller of a loan you will need, however this is far less important to lenders than if you can handle the monthly payments.

CREDIT SCORE

Your FICO score is not as limiting as you may think, and is far less important than your income and down payment. Some loan programs will accept as low as a 580 FICO. A better credit score may help your interest rate, but a lower credit score isn’t likely to ruin your ability to buy a home.