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Torang Nazmi's Blog

By AATRealty Home Buyer Credit | Broker in 75063

How Do I Qualify for a Conventional Mortgage?


Gather all your financial documentation. To qualify for a conventional mortgage, you will need to provide up-to-date, accurate documents that prove your financial stability. These include recent pay stubs, W-2 forms and tax returns from the current and previous year. If you are self-employed, you should also gather all records of profits and losses, as well as tax return information for the current year and past two years, as noted at Mortgage-X. You should also include any records of bonuses, commissions and overtime pay, as well as bank account statements from the past two to three months. According to Bank Rate, some conventional lenders may also require borrowers to provide proof of three to 12 months of cash reserves that will act as a buffer once the mortgage has been approved. The amount of cash required depends on the specific terms of the mortgage.


Boost your credit score by paying bills on time or early and reducing your debt. Keep track of your credit report and correct any inaccuracies immediately by contacting the credit bureau. If you have late bills that were caused by unforeseen circumstances, such as illness or unemployment, submit a 100-word explanation to the credit bureau explaining the circumstances.


Decrease your housing ratio, one of the two debt-to-income ratios that lenders consider during the mortgage application process. To calculate your housing ratio, simply divide your potential monthly mortgage payment -- principal, interest, taxes, insurance and dues -- by your gross monthly income. Most conventional lenders prefer that borrowers have a housing ratio of less than 28 percent, or 0.28. If your result is higher than 0.28, you might have difficulty qualifying for your conventional loan. The qualifying FHA loan housing ratio is 29 percent.


Decrease your total debt-to-income ratio to increase your chances of qualifying for a conventional mortgage. Most lenders favor borrowers with a debt-to-income ratio of less than 36 percent. To calculate your debt-to-income ratio, add up all monthly debts, such as car loans, student loans and child-support payments, as well as your future mortgage payment. Divide the sum by your monthly gross income. If the result is more than 0.36, or 36 percent, it may be beneficial to either wait to apply for a conventional mortgage or choose an FHA loan instead. The qualifying FHA loan debt-to-income limit is 41 percent.


Accumulate a substantial down payment for your home. A 20 percent down payment means a smaller loan, lower closing costs and lower interest rates, according to Loans.com. Lenders are often more willing to approve borrowers with large down payments, which provide immediate home equity.


Buy a home that you can afford. Lenders will thoroughly evaluate your financial status, and if you have applied for a mortgage that stretches your limits, they might be more likely to turn down your application.

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