Your credit score is just one element that goes into a lender’s approval of your mortgage. Here are some other personal factors that lenders consider when qualifying you for a mortgage.
1. Debt-To-Income Ratio (DTI)
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward paying off debt. Having less debt in relation to your income makes you less risky to lenders, which means you’re able to safely borrow more on your mortgage.
To find your DTI, divide the amount of recurring debt (including credit cards, student loans and car payments) you have by your monthly income. Here’s an example:
If your debt is $1,000 per month and your monthly income is $3,000, your DTI is $1,000 / $3,000 = 0.33, or 33%.
It’s advantageous to have a DTI of 50% or lower. The lower your DTI, the better chance you have at being offered a lower interest rate.
2. Loan-To-Value Ratio (LTV)
The loan-to-value ratio (LTV) is another factor used to determine how you qualify for a home loan. Your LTV is the loan amount divided by the home’s purchase price.
Here’s an example. Let’s say you buy a home for $150,000, put $30,000 down and take out a mortgage loan for $120,000. Your LTV would be 80%. As you pay off more of your loan, your LTV decreases. A higher LTV is riskier for your lender because it means your loan covers a majority of the home’s cost.
LTV decreases when your down payment increases. Considering the example above, if you take out a $110,000 loan and put $40,000 down ($10,000 more than before), your LTV is now 0.73, or 73%.
Different lenders accept different LTV ranges, but it’s best if your ratio is 80% or lower. If your LTV is greater than 80%, you may be required to pay a form of mortgage insurance. Keep in mind that this varies by loan type. Some loans, like VA loans, may allow you to finance the full purchase price of the house without having to pay mortgage insurance.
3. Income And Assets
Your lender wants to be sure that you maintain a steady income and consistent employment. Lenders often ask borrowers for documents that validate their income, assets and work history. These documents may include recent bank statements, pay stubs and W-2s. The steadiness of your income could affect the interest rate you’re offered.
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
Most mortgages, including conventional loans, require a credit score of 620 or higher. It's possible to get an FHA loan with a credit score as low as 500, but many lenders require higher scores. Borrowers with higher credit scores get better rates and terms than those with low scores.
The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.
Assuming you have enough income, a 720 credit score is likely high enough to help you get a government-backed mortgage such as an FHA for VA loan. However, it's probably not high enough to get the lowest interest rates available.
You can borrow anywhere from a few thousand dollars to $100,000+ with a 580 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
To qualify for a conventional loan, you'll need a credit score of at least 620, though some lenders may choose to approve conventional mortgage applications only for borrowers with credit scores of 680 and up.
If you make $70K a year, you can likely afford a home between $290,000 and $310,000*. Depending on your personal finances, that's a monthly house payment between $2,000 and $2,500. Keep in mind that figure will include your monthly mortgage payment, taxes, and insurance.
Conventional mortgages, like the traditional 30-year fixed rate mortgage, usually require at least a 5% down payment. If you're buying a home for $200,000, in this case, you'll need $10,000 to secure a home loan.
An individual earning $60,000 a year may buy a home worth ranging from $180,000 to over $300,000. That's because your wage isn't the only factor that affects your house purchase budget. Your credit score, existing debts, mortgage rates, and a variety of other considerations must all be taken into account.
You can borrow $50,000 - $100,000+ with a 720 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
Yes, you can buy a house with a 600 credit score — but it would be less challenging if your score were higher. A 600 score will not be high enough to qualify for a conventional home loan, so look into FHA loans, which have lower requirements: 500 with a 10 percent down payment, and 580 with a 3.5 percent down payment.
The Federal Housing Administration (FHA) insures FHA loans, which allows mortgage lenders to accept a credit score as low as 580 with a 3.5 percent down payment, or 500 with a 10 percent down payment.
Conventional loans are the most common type of mortgage, accounting for about 70% of the market. They usually require a 620 credit score, though some lenders will consider applicants with scores as low as 580.
You can borrow as much as $40,000 - $100,000+ with a 650 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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