Home Loan Qualification: Eligibility Criteria Required For Banks

By Guest | Jan 23, 2012

This is a guest post by Michelle Jenkins. Have you bought your home on a home loan? How was your experience? Would you like to share the eligibility criteria that were looked into in the home loan approval process as a guest article with our readers? Read the guidelines and proceed.

Home ownership is still the unfulfilled dream of many Americans. Despite what some may tell you, it is very possible to qualify for a home loan. It will be harder than it was during the housing boom a few years ago, but it is still possible with careful planning and proper management of your money!

Credit Score

When the banker considers your home loan request, the first thing they will look at is your credit score. Therefore, it is a good idea to know your score ahead of time. The higher the credit score, the better your chances of getting the home loan. Ask all three major reporting agencies for your report. Look at the report to see if there are any errors and work to get them corrected. If you have any small amounts that you have forgotten to pay, get them taken care of. The bank will want a score of at least 640. If you do not have a good score because you do not use credit, then look for a bank that will do your loan application by hand.

Employment

The bank will also want to see that you have held the same job for at least two years. They will generally expect you to be able to prove this fact. Ask your employer for a letter or find out what their company policy is on obtaining this employee verification.

Income

They will also want to know that you have enough income to cover the home loan plus any other debt that you have. Generally, banks want your housing expenses to be less than 28 percent of your total income. To arrive at the total cost of your housing expenses, the bank will add your mortgage payment, your mortgage insurance payment, your homeowner’s insurance and your property taxes. Once they have arrived at a yearly cost, they will divide it by 12.

Debt

The bank will also want to see what other debt you have. While the bank will want your home cost under 28 percent, they also want your total debt to be under 36 percent. They will take into consideration student loans, child support, car payments and any other recurring bill. If you only have a small amount left on a bill, then it is a great idea to finish paying that bill off before you apply for the home loan. It will lower your total debt load.

Down Payment

The bank will require you to have a down payment. Normally, the bank will expect you to put five percent down. You will need to have this money in an account where you can easily access it. On top of the down payment, the bank will expect you to have a cash reserve account set aside. Normally, the bank will expect you to have two months of mortgage payments in this account.

While it is tougher to qualify for a home loan from a bank, it is still possible. Carefully manage your credit score and start saving money, and you will soon arrive at your goal.

Byline: Michelle Jenkins knows all about mortgages and investment because she works with Iowa City Realtors.

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