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Getting a mortgage takes a bit of work and while it's not rocket science to apply, it's not something you can do overnight.
If you plan on buying a house with a mortgage loan, you have to meet certain qualifications.
Having a Down Payment is Only Part of It
When we applied for a mortgage, we had to go thorough examination of our finances. We had to provide documentation for everything.
I had to explain small gifts I made to family and friends to make sure we weren't paying back loans. My husband takes money out from the ATM for eating out and he had to write a letter of explanation to clarify it was not a bill.
Get a head start and examine your finances together to see if there is anything that looks unusual or odd. Make sure you're current with all your bills and make sure you have a positive monthly cash flow.
Can you afford being a home owner? One way lenders check is by combing through your household income. They request documentation such as W-2s, pay stubs, bank statements and previous tax returns. Our lender requested that we provide 2 years of information with our tax returns and recent bank statements for 2 months.
Debt to Income Ratio
Having a high amount of debt can ruin your chances of getting a loan. Lenders want to know that you can make these payments for years down the line and your debt to income ratio is one thing they analyze.
Your debt to income ratio is calculated by simply taking all your debt (student loans, credit cards, car loans, etc) and dividing that amount by your income.
You want to make sure your ratio is lower rather than higher. If your debt to income ratio is higher than 36%, you could have a hard time qualifying for a mortgage.
Loan to Value Ratio
Another reason to take your time and build a down payment is the loan to value ratio and how it affects your chances of getting a mortgage.
The loan-to-value (LTV) ratio is basically the mortgage loan amount you're hoping to get divided by the appraised value of the property you're considering to buy.
Personal Finance Posts on Buying a House
Those are some thoughts about qualifying for a loan based on our experience. If you're looking at buying a place, here are some personal finance posts to check out.
While everyone has a different take on the process, reading some other perspectives could prove to be valuable down the road for you.
- We Are Buying A House
- Should you buy or rent your home?
- How to Get a Bigger House Without Buying a New One
If you're checking rates for a mortgage, you may want to check out Quicken Loans. They have competitive rates and are a national lender.
Your Thoughts on Qualifying for a Mortgage
Has anyone bought a house in the last 6 months or so and bought a house years ago? Did you notice a change or was it about the same?