Mortgage Loan Qualification Requirements in 2020
In case you have thoughts about qualifying for a loan to buy your dream property this year, knowing all the basic borrowing guidelines can surely help you in finding the best mortgage loan program. This year alone there are tons of options available for mortgage loans thereby reflecting the rising cost of houses and properties in different areas within the United States. Here in this article, let us discuss in detail about the different types of mortgages you can qualify for by having a look at the set of guidelines for two of the most common types of loans.
FHA Loan Requirements: The loan backed by the FHA or the Federal Housing Administration is by far the easiest loan type you can opt for. Because the federal housing administration insures the mortgage, all lenders approved by FHA offer more favorable terms and rates, especially to the first-time property buyers. In this year, the FHA loan limits have increased considerably to around $331,700 in almost all parts of the country. Areas with high cost might even get FHA VA loans as high as $765,500.
Loan Requirements For A Federal Housing Administration Loan:
- Credit Score: Borrowers can now opt for the FHA approved VA loan with a credit score as low as only 500 and with a minimum of 10% down. If you happen to have a credit score of 580 and above you can buy a property with only 3.5% of down payment.
- Down Payment: FHA approved loans require a very low-down-payment of only 3.5%. This down payment requirement can jump up to 10% in case you have a lower credit score than 500.
- Employment: The Federal Housing Administration loan income requirements mostly look for a consistency of employment or earning for the past two years.
- Mortgage Insurance: In most cases, FHA loans require two different types of mortgage insurance. The UFMIP or upfront mortgage insurance premium is around 1.5% of the loan balance due and this can be further rolled into the borrower’s loan. For FHA loans the borrowers also need to pay some amount as MIP or annual mortgage insurance premium as part of monthly payments. The cost of MIP might range between 0.50% to around 1.05% of the total loan amount. In all cases, the mortgage insurance for FHA approved loans are the same regardless of any credit score.
- DTI Ratio: The back-end DTI ratio for FHA approved loans is around 43% whereas the front end ratio is around 31%. Talking of front end ratio, this considers only the housing-related cost like insurance, property taxes, or monthly mortgage payment. Whereas in case of back end ratio it includes mortgage payments, credit card payments, car loans, and all other sorts of recurring debt payment.
- Occupancy: After you have purchased a property or a house with an FHA approved loan, remember your home needs to be your primary residential address for at least a year after purchase. This condition is regardless no matter if it is a multi-unit property or a single-family house.
Conventional Loan Requirements: Conventional types of loans or the VA loans aren’t usually guaranteed by the federal government. These loans are by far the most popular option when it comes to mortgage. This year qualifying for high priced home loan is much easier, mainly due to the increase in home loan limits to up to $510,500.
Minimum Requirements For A Conventional Type Of Loan:
- Credit Score: The minimum required credit score for a conventional type of VA loan is around 620. Remember with a higher credit score, the borrower might get more favorable interest rate options.
- Down Payment: The minimum required down payment is around three percent for conventional types of loans.
- Employment: In the case of conventional loan types, the lenders needs a proof of a steady family income. They will then scrutinize the borrower’s past income of two years and their employment history. Self-employed borrowers and the ones with variable income will be needing other additional paperwork in order to verify their income.
- Mortgage Insurance: Borrowers opting for conventional type of loans and providing down payment less than twenty percent needs to have a PMI or private mortgage insurance in order to protect the lender. The borrower needs to pay somewhere between 0.15 to 1.95% of the loan amount each year. The mortgage insurance is usually paid as a monthly payment or the lender has an option to pay it as a lump sum during the closure.
- DTI Ratio: The DTI or debt to income ratio is a measure of total debt that is divided by the borrowers gross income. In the case of conventional lenders, most of them prefer a DTI of around 45 percent or less. However, it might stretch all the way up to 50% with additional cash reserves and a higher credit score. Borrowers having debt to income ratios more than 45 percent might need the mortgage insurers to have a credit score of 740.
- Occupancy: Conventional type of financing can be used to buy different types of properties such as vocational home, primary residence, or even an investment property that can be rented out.
In case you are thinking of buying a new property in Gilbert, Chandler, Mesa, Scottsdale, Phoenix, Tempe or anywhere else in the Valley of the Sun consider UrbanHouse Realty as your one stop shop for all your Real Estate needs. The agents at Urban House have years of experience and immense knowledge in all sorts of property acquisitions. No matter if you are a seasoned investor or a first-time buyer, the well-versed team at UHR has all the expertise that can cater to your purchase.