How much do I qualify for?
I get the same question all the time, how much do I qualify for? I wish there was a simple answer I could give, it would make my life easier, and lots of clients happier, but unfortunately life isn’t that easy or straight forward.
Instead, people really should be asking what do I need to know, and do, to be able to be the borrower lender’s want!
The most important thing for people to know, is what exactly a lender looks at when qualifying a borrower.
There are four primary points I will address today, although there are other factors lender consider’s, we are going to focus on just a few of the more important points today.
A person’s beacon score is very important, and weighs heavily in the assessment of a persons ability to borrow for a mortgage.
The lenders with the best rates are looking for borrowers with a Beacon score of 680 minimum. So it is important to have a clean credit bureau with a good healthy history.
The minimum lender’s are looking for is two credit lines (so two credit cards, or two lines of credit, or some combination of them), that are at least two years old, with a minimum credit limit allowance of $2,000 each.
To have a good credit score you need to have multiple lines of credit, pay them off/down on time, keep the capacity below 80% per card, and don’t constantly open and close lines.
If you are going to track your beacon score, or want to pull a bureau report, use Equifax or TransUnion as that is what the lender’s review, no other service is accurate, nor what is utilized by mortgage lenders.
Don’t take on larked amounts of debt!! This will have a major impact on your ability to borrow for a home.
Low interest, or zero interest, loans may seem like good ideas when you really want to buy a car, or get new furniture, or other items. However, if home ownership is a priority for you, avoid borrowing large amounts prior to owning a home. The more you owe, the less you can borrow!
Of course income is important, especially in the markets with high real estate price tags! The old adage is that you can borrow 4 times your income, however that isn’t exactly factual as other factors impact your borrowing capacity.
How much you make is important, but it is also important that you can prove you have good earnings, you aren’t on probation, and if commission/hourly, you have at least two years history to show your average annual earning!
The amount you put as a downpayment also helps you be able to borrow more home!
What I mean is that if you are limited to borrowing $400,000, if you only put the minimum of 5% down, you can buy a house for no more than $420,000. The larger down payment you have, the larger the purchase!
There are other factors that lenders take into account (borrower’s history, home location, the home itself, property taxes, condo fees, heat, etc), however the items I covered above, are important factors that should be at the forefront of the home buying process!
If you are looking to buy a home, or if you have any questions about the home buying process, please feel free to contact me any time!