Common Mortgage Loan Requirements You Need To Know
Credit History & Score:
Minimum Credit Score: Most conventional loans require a minimum FICO score, often 620 or higher. Some government-backed loans like FHA may have lower minimums (e.g., 580, or even lower with a larger down payment).
Credit Report Review: Underwriters will scrutinize your credit report for payment history on all debts (credit cards, loans), outstanding collections, bankruptcies, foreclosures, and public records.
Clean Credit History: A history of on-time payments and responsible credit use is crucial. Recent negative marks can be a red flag.
Number of Credit Lines: They will look at the number of open credit accounts and how well you manage them.
Credit Utilization Ratio: This is the amount of credit you're using compared to your total available credit. A lower ratio is better.
Income & Employment:
Proof of Stable Employment: Underwriters typically want to see at least two years of consistent employment, preferably with the same employer or in the same field.
Income Verification: You'll need to provide documentation like recent pay stubs (usually the last 30 days), W-2 forms (for the past two years), and potentially tax returns.
Other Income Sources: If you have income from sources like bonuses, overtime, commission, part-time work, self-employment, or contract work, you'll need to provide documentation to support it.
Continuity of Non-Wage Income: For income like alimony or child support to be considered, it often needs to be expected to continue for at least three years after the mortgage.
Self-Employment Documentation: Self-employed individuals will typically need to provide more extensive documentation, such as tax returns, profit and loss statements, and potentially bank statements to verify income stability.
Debt & Assets:
Debt-to-Income Ratio (DTI): This is the percentage of your gross monthly income that goes towards debt payments (including the new mortgage). Lenders generally prefer a DTI below 43%, and sometimes even lower (e.g., below 36%).
Verification of Assets: Underwriters will want to see proof of your liquid assets, such as bank statements (checking and savings), investment accounts (brokerage, 401k, IRA), to ensure you have sufficient funds for the down payment, closing costs, and reserves.
Source of Down Payment: They will want to know where your down payment funds are coming from and may require documentation (e.g., bank statements, gift letters if it's a gift).
Gift Letters (if applicable): If part of your down payment is a gift, you'll need a formal gift letter from the donor, along with documentation proving the donor's ability to provide the funds and their relationship to you.
Cash Reserves: Some lenders may require you to have a certain amount of cash reserves (money left over after closing) to cover a few months of mortgage payments and unexpected expenses.
Property & Loan Details:
Appraisal: The lender will require an appraisal of the property to ensure its market value supports the loan amount.
Purchase Agreement: A signed purchase agreement outlining the terms of the sale is necessary.
Homeowners Insurance: You'll need to show proof of a homeowner's insurance policy that will be effective at closing.
Title Insurance: You will likely need to pay for title insurance to protect both you and the lender against any claims or liens on the property.
Loan Amount within Limits: The loan amount must fall within the conforming loan limits set by Fannie Mae and Freddie Mac (for conventional loans) or the limits set by the FHA or VA (for government-backed loans).
Property Type: The property must meet the lender's guidelines (e.g., typically a single-family home, or a multi-unit dwelling with up to four units, and must be a residential property).
Property Condition: The underwriter will rely on the appraisal to ensure the property is structurally sound and habitable.
No Claims Against the Property: The title search will ensure there are no outstanding liens or legal issues with the property.
Other Requirements:
Identification: You will need to provide valid identification (e.g., driver's license, social security card).
Homebuyer Education (sometimes required): For certain first-time buyer programs, especially those with low down payments, you may be required to complete a homebuyer education course.
It's important to remember that these are common requirements, and the specific documentation and criteria can vary depending on the lender, the type of loan you are applying for (conventional, FHA, VA, USDA), and your individual financial situation. Being prepared with thorough and accurate documentation is key to a smooth underwriting process.
