11/11/2022
Looking for financing is one of those things we give a lot of thought to because of the time, money and paperwork involved. Nor is it enough to understand that it becomes even more complicated when our financial situation is not ideal.
The subject of the requirements to obtain a mortgage loan is something that interests everyone and that is what we will deal with this time.
May interest you: Types of mortgages loans
What are the requirements to obtain a mortgage in the United States?
As a warning, you should understand that the requirements to get a mortgage vary among the entities that offer them. However, to find out whether you qualify for a particular program, we will review the common elements that characterize mortgage loans.
When you want to apply for a mortgage loan, you will need:
A stable source of income.
The best way to gain the trust of banks or mortgage lenders is to demonstrate that you have sufficient solvency to repay them.
Among the most common sources of income are steady wages, self-employment earnings, alimony, Social Security payments, property rentals, bonuses and commissions, and investments that generate dividends.
- Interest: From 4.75% to 5.75%
- Max term: 30 años
- Interest: Consult
- Max term: 30 años
- Interest: First years fixed-rate and the rest adjustable: SOFR + margin
- Max term: 30 años
- Interest: SOFR + margin
- Max term: 30 años
- Interest: From 5.125%
- Max term: 30 años
Before 2008, there were so-called "stated income" or "liar's loans", because you declared what you earned and the institution did not bother to review the information.
Now, most require income verification, so you should have pay stubs, tax returns, bank statements, and 1099 or W2 forms from your employers or those who do business with you.
They may also call your work to validate that you are not unemployed.
Down payment
Lenders usually prefer that you put down at least 20% of the value of the property, but this also depends on the type of mortgage you are applying for. This down payment prevents banks from having to do further research or ask for additional collateral.
This condition applies to conventional mortgages, since putting down less means having to take out Private Mortgage Insurance, which will cost you more in the long run.
On the other hand, government mortgage loans work differently:
- With FHA loans they ask for 10% down if you have a score between 500-579 or 3.5% with a score of 580+.
- There are the 203K loans, which require a 3.5 percentage.
- Conventional 97 loans also require a 3% down payment.
- Both VA and USDA loans do not require a down payment, but include other details. The former have a funding fee of 1.25 to 3.3% depending on the down payment you make or if you are in the military (active, reserve or national guard). The latter have an up-front fee equivalent to 1% of the amount and insurance for 0.35% of the annual balance.
Debt-to-income ratio
The debt-to-income ratio (DTI) is an important factor for potential lenders because it indicates to them the feasibility of you being able to take on financing of this type.
The debt-to-income ratio is usually calculated by adding up your fixed monthly expenses and dividing them by what you spend to repay the loans and credit you have taken out.
Generally, you need to have a debt-to-income ratio of less than 50% for conventional mortgages, but the ideal range is between 36% and 43%.
For Fannie Mae and Freddie Mac requirements, the maximum debt-to-income ratio has been raised to 50%. Depending on the government program you choose, the limits are:
- A maximum of 41% for VA and USDA loans.
- DTI for FHA can go up to 50% (with cash reserves and good credit), although the usual average is 43% or less.
Credit Score
Another decisive factor in getting a mortgage in the United States is the famous FICO credit score. If you have a fair or bad credit score, your chances are substantially diminished because you have not managed your personal finances well.
In the case of conventional mortgage loans, the ideal is to have a score above 680 or in the worst case scenario, over 600.
Each program offered by financial institutions has minimum qualification requirements, however these parameters may vary due to internal policies. Limits that we are aware of are:
- 580 for FHA loans.
- 620 for Conventional 97, USDA and VA mortgages (you can also be approved with 580+).
- 640 for conventional mortgage loans and for 203k loans.
Other requirements for a mortgage in the USA
Finally, there are several other procedures that are important for lenders to be able to give you the Ok for a mortgage loan. Some of them you will need to assume the closing costs, such as a cash amount ranging from 2 to 5% of the value of the home.
Others include: homeowner's and title insurance, property inspection, a survey and appraisal to estimate both the down payment and the amount of financing.
Qualifying for a mortgage in the United States depends mostly on your job stability and proper management of your personal finances.
English: Requisitos para contratar una hipoteca