Here are a few fundamental aspects of homebuying to assist you in comprehending the qualification process.
Your initial step should be to get preapproved, which requires a lender to obtain and assess your credit report, review your documents to confirm your monthly income and verify your funds for a down payment and closing costs.
Once you are prepared to proceed, initiating a credit check generally has minimal short-term impact on your credit score, and the results are typically valid for a few months. Almost the entire preapproval process can be completed online using the loan application link provided on my website homepage. If any documents are required from you, as discussed, you can securely upload them through the portal link available on the secure loan application site.
Typically, preapprovals remain valid for several months—remember that each case is unique, and your circumstances may necessitate additional updates to the information you initially submitted to ensure the continuation of a loan preapproval in the future.
Estimating a monthly mortgage payment for a loan with a low or no down payment, including property taxes and home insurance in the payment, can be quickly done by multiplying $8 for every $1000 of the sales price. For instance, for a sales price of $300k, multiplying $8 by 300 would give you an approximate monthly payment of $2400.
I’m using a conventional rate of 6.79% for a 30 year fixed rate with an APR of 7.131% for this calculation here as of October 2024. Please keep in mind rates change several times a day and can be higher or lower than what I am using here. The monthly payment may also change depending on the annual premium quote for home insurance, which can vary significantly depending on the location and characteristics of the home. I’m using $1200 a year in annual home insurance premium here but I’ve seen double and even 3-4 times that number in some areas. Home insurance is something you shop for with your insurance agent of choice. In addition, property taxes can occasionally be higher --or lower--than the standard lender estimate of 1.25% of the sales price.
A general conventional loan guideline is that your verifiable monthly income should be approximately two and a half to three times the amount of your monthly mortgage payment which would include property taxes, home insurance and HOA if applicable. Government loans like FHA or VA may be more liberal.
For instance, if the sales price is $300k --with a monthly mortgage payment of $2400 (300x8), the total gross monthly income for all buyers listed on the loan application should be approximately $7200 --3 times a monthly mortgage payment of $2400.
This of course depends on your consumer credit monthly payment obligations as they appear on a credit report—as well as any other financial obligations like family support or deferred student loan payments—if applicable to your situation. The higher your monthly debt payments-- the more monthly income is needed to qualify—while little to no debt can reduce the amount of monthly income needed to qualify for the same priced home.
Government backed loan programs like the zero down payment USDA and VA loans and small down FHA can be useful if your credit score is on the lower end of the scale or you lack the traditional down payment funds needed for conventional loans. USDA and VA for example are zero down payment- but typical buyer’s share of closing costs is roughly 2-3% of the sales price. These closing costs can often be paid by the seller or even the lender depending on housing market conditions. The USDA loan program does have income restrictions for maximum annual household income, but many people can qualify. The VA loan requires VA eligibility via military service—and has no income limits. FHA requires 3.5% down and also has no income limits.
Conventional loans--minimum 3% down payment. Funds required from you on a conventional purchase would typically be a minimum of 3% down payment and 2-3% in closing costs for the buyer's share of title fees, first year's home insurance policy premium paid in full and the required impound account deposit for the lender to collect and then pay -on your behalf when due-- property taxes and home insurance. Impound accounts are only required on most government backed and small down payment conventional loans.