First Time Home Buyers: What Are Lenders Looking For To Qualify Someone For A Home Loan
Lenders look at potential borrowers similar to the way that you would look at someone that you were going to lend $200,000 dollars to. But we can break it down into 4 basic criteria that you should know as you start going through the process of buying a house in Colorado Springs.
(LTV) Loan to Value
LTV is a simple percentage of how much you want to finance versus the value of the house. For example, if you want to buy a 200,000 dollar house and want to put down 3.5% ($7,000), then you would be financing 96.5% of the value of the house.
Credit tells the lender if you have paid people back when you’ve used credit before. They look at your credit score and your payment histories on each trade-line. They also look for any bankruptcies, foreclosures, judgments, and collections. These may not exclude you from buying a house, but they will just factor into the final decision depending on the loan product you choose.
(DTI) Debt to Income ratio
DTI is a simple percentage calculated by the amount of monthly bills that you have on your credit report compared to your monthly gross income each month. So if you have $2500 dollars in bills each month and you show $5000 dollars of income each month, then you are at a 50% debt to income ratio. Most home loan programs would like to see you at 50% or lower.
Reserves show the lender that you can save some money for those unexpected hard times that everyone goes though at some point. If you have 1-2 months of money saved up, then you will be more prepared to make a house payment even if you lose your job for a month or two. Most programs don’t require any reserves, but the more you have, the stronger your loan application will be.
Most loan programs have several hundred pages of guidelines for underwriters to follow to approve the loans. But in general, these 4 items are where they start. Being a knowledgeable home buyer will improve your chance of getting approved, and getting the correct loan product that fits your needs the best.
Call Fidelity Mortgage Solutions today and we will give you a free analysis of your situation, and fit you to that best product.