Qualifying For a Home Loan- The Basics

Loan programs and requirements vary greatly and change constantly, but I wanted to give first-time home buyers a rough idea of what it takes to qualify for a mortgage. Working as a Realtor & buyer’s agent in the Boise area for many years, I get questions about this frequently.

Credit Rating & History
For many, buying the first home is where we realize just how important a credit rating is. A low score limits your options & opportunities and costs you money in higher interest rates & insurance premiums. A score in the 600’s is probably the minimum you need to get a loan with a low interest rate and low down payment.

Generally, lenders want to see at least one year of clean credit- that means no 30-day lates, collections or judgements. No bankruptcies/foreclosures/short sales for 2-3 years. Six months on the job to count income. Changing employers in a similar field of work is no problem. Disabilty and child support may be counted as income.

Lenders will require a detailed application supported by bank & account statements, paycheck stubs, 2-3 years tax returns, written verification of employment, permission to run a credit on all 3 reporting agencies.

Income & Debt Ratios
Your total house payment (principle, interest, taxes, hazard insurance, mortgage insurance) cannot exceed 30% of your gross- before taxes-  monthly income. So if you make $3000 per month, your maximum payment would be $900. Some lenders may allow a slightly higher payment to income ratio.

Your debt can further limit your payment. Your total payment plus your long term debt cannot exceed 41% of your gross income. Long-term debt: car payments, credit cards, student loans, child support, any installment payments lasting longer than 10 months. So if you make $3000 times 41% equals $1230. Subtract a $500 car payment. Your maximum house payment would be $730 instead of $900.

Cash On Hand
To make an offer on a home you need an earnest money deposit. $1000 is typical in the Boise market, regardless of down payment. If you go VA zero down and the seller pays all of your closing costs, then you would get a refund at closing.

Currently FHA loans are the easiest to qualify for and require a minimum 3.5% down payment. IHFA also offers help with down payments and closing costs for first-time (not owned in last 3 years) buyers in Idaho. Most lenders can do any of these programs- ask me for good local lenders.  The only zero-down options are VA for veterans and Rural Development for low income buyers in certain low population areas- only parts of Kuna in Ada County.

Typical closing costs with a new loan are over 3% of the purchase price. The seller can pay some or all of these. So, you would need at least the down payment by closing. Gifts from relatives are allowed. Borrowing
from your IRA is also possible. All must be approved by lender.

I am a Boise Idaho real estate broker, not a lender. I do know many good lenders.  Ask me for a referral to find out if you qualify.  Your future depends on this!

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