UNDERSTANDING BANK QUALIFYING

The second step on your way to being a homeowner is pre-qualifying. You can qualify with a bank or a mortgage broker.

When a bank or a mortgage lender qualifies you, they consider things like credit, income, and assets. 

Your credit is monitored by three bureaus: Equifax, Transunion, and Experian. Each of the bureaus develops a Fico score that ranges from 500-850. Usually, the minimum FICO score to qualify is 620 and above; however, there are programs that accept lower scores. A FICO score of 740 and above is considered perfect and will get you the best interest rates. When analyzing the credit scores, the bureaus look at the balances, timely payments, delinquencies, and bankruptcies. A little known fact is that delinquencies, bankruptcies, and even foreclosures do not prohibit you from buying a home. 

Income is the second aspect of qualifying. Banks want to ensure that you have sufficient funds to pay your monthly mortgage. They use ratios when determining your income sufficiency. The ratio is a percentage of your income in relation to the mortgage payment. Banks look at the front and back ratios. A front ratio is the percentage of your income that pays for your home. For example, if your income is $10 000 a month and your mortgage is $2000 a month. Your front ratio is 20%. Let’s add $3000 debt of car payments/student loans, etc. The $2000 mortgage payment and $3000 debt payment is $5000 total payment that gives you a 50% back ratio. In a perfect world, banks would like the front ratio of 39% or less and a back ratio of 49% or less. 25-30% is a good measurement to consider when trying to understand your front and back ratios. 

Assets can be used for the down payment and or closing costs. Depending on the programs, assets can be as little as 0, with the average down payment range from 3-20%. Assets can be liquid (checking or savings accounts), gift funds from qualified family members, or even borrowed funds (pension loans, credit lines).

The final thing on our list that banks consider is the collateral, which is the property you are interested in purchasing. The bank will appraise the home to determine that the asset you are putting up as collateral has enough equity to protect both your and the bank's investments. 

Bank qualifying is an individual experience for all home buyers and the home buying experience is different for every buyer. To get a customized, comprehensive consultation, contact us at [email protected] or follow us on social media at Martino Realty Group.