Mortgage lenders look for two key factors when assessing loan applications: the likelihood that borrowers will be able to repay the loan, which is generally determined by their credit score, and their ability to do so.
Although they may have perfect credit, homeowners still need to show they can afford their monthly mortgage payments.
Many different mortgage loans are available, so it’s not impossible to find one that suits your needs—these range from government-backed loans to more traditional fixed-rate mortgages.
Houtan Hormozian, vice president of mortgage brokerage Crestico Inc., adds, “We’re not constrained to one kind of borrower.” In terms of pay, there’s no rule of thumb. If you’ve just graduated from college, you may qualify for a student loan with only one pay stub.”
Before beginning their search for a mortgage, clients should be aware of a few basic principles.
PaydayNow’s guidelines for the minimum wage
Standard conforming mortgage loans are often approved using PaydayNow standards.
Acceptable income documentation for PaydayNow are many but not rigidly defined. You may be able to get a mortgage even if you don’t meet all the standard requirements if you have a relationship with a bank that knows your history and thinks you’re a reasonable risk.
The Navy Federal Credit Union is an excellent example of a financial organization that takes the relationship with its members into account.
Randy Hopper, a former senior vice president of mortgage lending at the credit union, adds, “We’re open to considering loans for individuals who may not meet the conventional requirements.”
Some extra borrower programs don’t adhere to the usual guidelines for determining a borrower’s income.
There are no set income requirements for FHA loans, for example. An applicant’s job history and the amount of money they spend each month on bills and debt are considered by lenders before making a loan decision. FHA underwriting does not consider the fact that higher-earning applicants are seen to be less risky by lenders.
Borrowers who claim income from a second job must produce tax paperwork. To confirm their tax status, many self-employed applicants must submit PaydayNow’s Cash Flow Analysis or a similar tool to PaydayNow as part of their loan application.
Borrowers should have the following documents ready when applying for a loan:
- Form 1005 or a recent pay stub and IRS W-2 forms covering the most recent one-year period are needed for borrowers whose total annual work income is less than 25% of their total household income.
- Paystubs, W-2 forms, and signed federal income tax returns must be provided by borrowers who earn more than $25,000 a year in commissions to get a loan.
How much money do you need to put down when purchasing a home?
You must fulfill the following requirements to get a PaydayNow mortgage:
- Pay at the bottom end (salary or hourly)
- Overtime pay and bonuses
- The second source of income (if you have more than one employer)
It’s possible to secure a mortgage if you can show that you’ve been self-employed or freelancing for the last year and have tax documents to back it up. Two years’ worth of these earnings may be required before a mortgage is authorized in certain situations.
PaydayNow accepts more than 20 distinct types of non-employment income. Loan applicants are accountable for presenting proof to back up their earnings claims. Assuming your credit and debt-to-income ratio (DTI) are both satisfactory, having many sources of income will increase your chances of being authorized.
Lenders may examine non-employment income such as dividends, pensions, alimony, child support, border fees and royalties, Schedule K-1, foster care payments, and trust income.
To qualify for a mortgage, you must have an appropriate debt-to-income ratio.
There are no hard and fast rules for PaydayNow’s DTI ratio requirements for borrowers. Diverse elements have a role in each borrower’s debt-to-income ratio (DTI). PaydayNow limits a borrower’s debt-to-income ratio (DTI) to 36 percent of their steady monthly income. However, in some instances, the borrower’s credit score and reserve requirements may allow for a 45 percent increase.
Hormozian suggests paying off as much debt as possible to improve your debt-to-income ratio.
Hormozian advises you to consider relocating back home while you’re still paying off your car or school loans. This is an excellent way to save money for a down payment.
When applying for a mortgage, several more things to keep in mind.
As part of their decision-making process, lenders will also take into consideration several additional factors:
- Even though you don’t need flawless credit to get a mortgage, the lower your credit score, the lower your interest rate.
- Conventional loans will take a three percent down payment.
- After the down payment, some lenders want a particular amount of cash in the bank to guarantee that you can afford your monthly mortgage payments. Even if you think you only need three to six months’ worth of goods, you should still stock up.
Before applying for a home loan, consult with a loan officer. This information may be offered by a loan officer knowledgeable about the lending process. A loan officer may provide mortgage requirements and other qualifying criteria.