“Where do I even begin!?” “Do I even qualify to buy a house?!” The idea of owning a home to grow your family, host your friends, and have a place to call your own may seem out of reach for many of you, but knowing the first steps in getting there could help you get a jump start on a seemingly unreachable goal. Kasen Kolhoss, real estate agent with Custom Fit Real Estate Group, is here to explain the five main qualifications a lender requires when you buy a home.
Five Main Qualifications For Buying A Home
1. Steady Employment
Lenders will usually require two years of steady employment when considering you for a loan. However, this doesn’t mean you have to have been in the same job the last two years. Lenders will may also accept if you’ve just been in the same line of work consistently in the last two years. The type of loan you get also can determine the job history requirements, below are job history requirements by loan type according to The Mortgage Reports.
- Conventional Loan: requires two years of same industry history. If there are any gaps in employment, you need to be in your current position for 6 months.
- FHA Loan: requires two years of same industry history, similarly as the conventional, you need to be in your current position for 6 months if you have gaps.
- VA Loan: requires two years of same industry history, or relevant schooling or military service. If you are active military, more than 12 months from release date is required.
- USDA Loan: there is no minimum requirement of work history for your current position. You just need to prove that you have two years of work or related history.
2. Solid Income
Lenders need to know that you’re also making enough money to be able to pay the loan back. So a solid income is something that they will assess on top of your employment length. Below is how your lender might assess your salary based on the type of salary you have according to HomeLight.com.
- Annual Salary: your lender will likely take your annual salary and divide it by twelve to check you monthly income.
- Hourly Pay: most lenders will take the average of your monthly work hours and multiply that by your hourly wage.
- Overtime/Bonuses: lenders may take your last two years of overtime and bonuses and divide them by 24 to get the monthly average.
- Commission: only if your pay is 25% or more from commission the lender will likely take the average of two years as your take home pay.
3. Minimal Debt
Lenders will look at your debt to income ratio. This means that they want to know what percentage of your income is going towards your debt. If the percentage is too high, you made need to work on bringing that number down before you can qualify for a loan.
4. Decent Credit
With today’s market the lowest credit score you can have is a 580. Minimal debt help with your credit scoring as well. According to HomeLight.com , you want to make sure you’re only borrowing 30% of your available credit given to you. So if you have a card limit that is $10,000, you want to keep your balance around $3,000 or less to be able to maximize your credit score.
After your lenders have gone through the first four qualifications, the last step is for you to get pre-approved. This is where you learn how much house you can buy, and what loan type you qualified for. Getting preapproved also let’s sellers know that you’re serious about buying their house. Getting preapproved sets the budget for your new home! Once you have gone through all five of these main qualifications, you’re ready to go house shopping.
If you now feel like you’re in a good position to buy a house because you’ve learned about the qualifications, reach out to one of our Custom Fit Real Estate agents to help you get started or answer any further questions you may have. Your dream of owning your home may be closer than you think!