Tuesday, September 15, 2015 / by Caleb Pearson
How to Qualify for a Loan
It’s no secret. Houses are expensive and for most of us, hard to afford. The reality is that we need to get a loan in order to make the big purchase. But there are multiple factors that you need to take into account in order to qualify for a loan. Once again, I’m here to help. Let me tell you about the most important things you need to get your loan approved.
Having a good credit score is by far the most important thing when you want to qualify for a loan. A credit score will tell the lender if you are a feasible investment or not. It’s a telltale of your debt.
Credit scores can range between 350 and 850, although a good credit score is considered to be between 740 and 850. Lower values don’t bode well with lenders. In fact, many lenders won’t work with people that have a credit score lower than 600.
Check your credit record and make sure your score is good enough for a loan. If it isn’t, get to work paying of your current in a timely manner and ask your bank for some helpful tips.
Equity / Down Payment
This is another important factor. You need to prove you have enough funds to cover at least the basic expenses of a mortgage. The bare minimum in this case is at least 3.5% of the total home price, but the more the better. Some lenders will require 5-10% or more, depending on what financial institution you choose to work with.
Income vs Debt Ratio
The better the ratio, the bigger the loan you can receive. Lenders tend to select people that spend less than 50% of their income. These are the people that will most likely to live up to the loan. In this particular ratio, variable expenses such as Internet, utilities, cable and phone are not included.
Lenders also need to know if you save in a liquid account or in your home. Having cash reserves will increase the likelihood of getting a mortgage approved, so the more reserves you have, the better the chances of getting a loan.
As you can see, there are quite a lot of requirements that you need to fulfill in order to qualify for a loan. It’s important to ensure that you have a good credit score and assets, as well as a down payment, as these will get you one step closer to your new home.