It used to be that getting a mortgage was no big deal. Well, it's a little different landscape now. Banks still want to lend you money to buy a home -- the magnifying glass is just a little larger than it used to be.
Yes, the days of zero-down-payment loans with no income verification are long gone. To qualify for a mortgage today you will need three things: cash, income and good credit.
In the cash department you are going to need between 3.5 percent and 20 percent for a down payment depending on what type of home you are buying and your credit score. Keep in mind most conventional loan programs will also want you to have cash reserves in the bank after the loan has been finalized.
You will need to be able to prove your income and assets with current pay stubs, W-2 forms and bank statements. If you are self-employed, be prepared to provide two years' of tax returns.
Curious about how much you can borrow? That depends on your debt-to-income ratio. In general, your total monthly debt obligation should not exceed 36 percent of your gross income.
While we are on the subject of debt, one of the first things you'll need to do is find out your credit score. FHA loans state you need a credit score of 580 -- but 620 is more realistic.
Fannie Mae and Freddie Mac also say your score needs to be 680, but … really it needs to be more like 720.
Not happy with your credit score? Well, credit is a lot like someone's reputation. It takes a long time to build up, but it can be damaged in the blink of an eye.
For the long term, the best thing you can do to keep a good credit score is to pay your bills on time. Also, pay the debt down over time. Together these are two-thirds of your credit score. This shows you are good for the money you borrow.
Say you have a credit score of 695, and you would like it to be over 700. If you have spare cash on hand, throw it on a revolving credit line, which will decrease the amount you owe relative to the upper limit on the line of credit.
Also, make sure the information on your credit report is accurate. People do make mistakes, so take a close look.
True, mortgages are harder to come by than they used to be. But with cash on hand, an income and good credit, your lenders should have a pretty clear view of you.