If you think that you are ready to make your first home purchase, then there are several things that you will need to know before applying for the home loan. Your mortgage lender will look at several different aspects of your financial history before making the decision about your home loan. You may be required to make some repairs to your financial standings before you can proceed, so check carefully before beginning the process, and you might be able to save yourself a lot of time and heartache.
First of all, your lender will want to see steady employment for the last two years. If this employment is with the same employer, that looks even better for you. Frequent job changes or stretches of unemployment can make obtaining a loan that much harder for you. You may be able to apply for a mortgage without disclosing your employment history, but you can expect to pay higher interest rates as a result.
Your lender will also take your income into account. You must have a certain debt to income ratio before banks will even consider giving a new loan. For this reason, it is a good idea to clean up your debt before applying for a loan. You want your debt to income ration to be lower than 41%, but obviously you will receive better interest rates for a lower percentage.
And, of course, you must have a fairly strong credit score before lenders will even consider approving your mortgage loan application. If your credit score is below 499, you will not be able to obtain a mortgage. Your best bet is to work hard on cleaning up your credit score before attempting to apply. For scores between 500 and 579, you may be approved for subprime lending, which means that you will have a very high interest rate. Subprime lending rates will also affect those that have credit scores of 580 to 619, though you might qualify for 100% financing with those scores. Any scores above 620 are considered "A" scores for lenders, and will make the whole process fairly easy for you. You may still be required to pay higher interest rates than applicants with better credit scores. Once you reach 720 on the scale, you are guaranteed preferential treatment. Your interest rates will be lower, and you will have several mortgage packages from which to choose.
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