Requirements to contract a mortgage in the United States

Looking for financing is one of those things that we give a lot of thought to because of the time, money and the paperwork that it implies. Nor is it enough to understand that it becomes even more complicated when our financial situation is not ideal.

The theme of requirements to obtain a mortgage It is something that interests everyone and it is what we will deal with this time.

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  1. What are the requirements to obtain a mortgage in the United States?
  2. Other requirements for a mortgage in the USA

What are the requirements to obtain a mortgage in the United States?

As a warning, you should understand that the requirements to get a mortgage vary between the entities that offer them. However, to find out whether or not you qualify for a particular program, we will review the common elements that characterize home loans.

When you want to apply for a mortgage loan, you will need:

A stable source of income

The best way to gain the trust of banks or institutions that grant mortgages is proving that you have sufficient solvency to pay them.

Among the most common sources of income are fixed salaries, self-employment earnings, alimony, Social Security payments, property rentals, bonuses and commissions, and investments that generate dividends.

Fixed mortgageFixed mortgage

  • Interest: From 3%
  • Deadline: 30 years

More infoRequestVariable rate mortgageVariable rate mortgage

  • Interest: LIBOR + spread
  • Deadline: 30 years

More infoRequestFixed mortgageFixed mortgage

  • Interest: 3.13
  • Deadline: 30 years

More infoRequestVariable or adjustable mortgageVariable or adjustable mortgage

  • Interest: LIBOR + 2.25%
  • Deadline: 30 years

More infoRequestFixed rate mortgageFixed rate mortgage

  • Interest: Consult
  • Deadline: 30 years

More infoRequest

Before 2008, there were so-called “stated income“Or”bundle’s loans“, because you declared what you earned and the entity did not bother to review that information.

Now, most require income verification, so you should have pay stubs, tax returns, statements, and 1099 or W2 forms on hand from your employers or those who do business with you.

It is also possible that they call your work to validate that you are not unemployed.

Down percentage

Lenders usually prefer that you give at least 20% of the property’s value, but this also depends on the type of mortgage you are applying for. East down payment It prevents banks from having to do further research or ask for additional collateral.

Mortgage requirements in the USAThis condition applies to conventional mortgages, since putting less means having to take out private mortgage insurance (PMI), which will cost you more in the long term.

Instead, government home loans they work differently:

  • With FHA mortgages they ask you for a 10% down payment if you have a score between 500-579 or 3.5% with a score of 580+.
  • There are the 203K loans, which require a 3.5 percentage.
  • Conventional credits 97 also require a 3% down payment.
  • Both VA and USDA do not need a down payment, but include other details. The former have a financing fee (funding fee) from 1.25 to 3.3% depending on the down payment you give or if you are a military (active, reserve or national guard). The latter have a up-front fee equivalent to 1% of the amount and insurance for 0.35% of the annual balance.

Debt to income ratio

The debt-to-income ratio (DTI) is an important factor for potential lenders because it indicates the feasibility of you being able to assume financing of this type.

The debt-to-income ratio is usually calculated by adding your fixed monthly expenses and dividing them by what you spend on repaying the loans and credits you have contracted.

Generally, you need to have less than 50% indebtedness for conventional mortgages, but the ideal range is between 36% and 43%.

Regarding the Fannie Mae and Freddie Mac requirements, the maximum debt-to-income ratio rose to 50%. Depending on the government program you choose, the limits are:

  • A maximum of 41% for VA and USDA loans.
  • The DTI for FHA can go up to 50% (with cash reserves and good credit), although the usual average is 43% or less.

Credit score

Another deciding factor for get a mortgage in the United States, is the famous score FICO credit. If you exhibit a fair or bad score, your chances decrease substantially because you have not managed your personal finances well.

In the case of conventional mortgage loans, the ideal is to have a score above 680 or worst case scenario, more than 600.

Each program offered by financial institutions has minimum qualification requirements, however these parameters may vary due to internal policies. The limits we know are:

  • 580 for FHA loans.
  • 620 for the Conventional 97 mortgages, the USDA and also for the VA (they can also approve you with 580+).
  • 640 for conventional mortgage loans and for 203k credits.

Other requirements for a mortgage in the USA

Finally, there are several procedures that are important so that lenders can give you the OK of a mortgage loan. Some you will need to cover the closing costs (closing costs), as a cash amount ranging from 2 to 5% of the home’s value.

The others include: homeowner and title insurance, property inspection, a survey, and an appraisal to estimate both the down payment and the financing amount.

Qualify for a mortgage in the United States It depends mostly on your job stability and the proper management of your personal finances. If you want to know more about the subject, contact us in the Business Blog comparator.

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