As real estate agents in Harford County, it’s our job to help our clients find their dream home, answer all of their questions, and navigate the complex process of buying a property. One of the most important steps in the home buying process is securing a mortgage. Whether you’re a first-time homebuyer or a seasoned pro, getting approved for a mortgage can be a complex and daunting task. In this blog post, we will share with you the six things lenders are looking for when approving you for a mortgage in Harford County to help you better understand the process and increase your chances of getting approved.
1. Good Credit Score
Your credit score is one of the most important factors that lenders consider when approving you for a mortgage. A good credit score shows that you are a responsible borrower and are more likely to make timely payments on your mortgage. In Harford County, most lenders require a minimum credit score of 620 to qualify for a mortgage. However, a higher credit score will increase your chances of getting approved and can also help you get a better interest rate on your mortgage. If you are worried your credit score is a bit too low, now is the time to start working to build it back up. Fixing your credit can be easier than you may think, so don’t less this apparent hurdle stand in your way.
2. Stable Employment and Income
Lenders want to see that you have a stable source of income and employment history. Ideally, you should have been employed with the same employer for at least two years and have a consistent income stream. In Harford County, lenders typically require you to provide two years of tax returns and pay stubs to verify your income and employment history. The requirements may be more intense for those who are self-employeed or who have recently changed positions. Borrowers in these situations may opt to work with a lender who specializes in assisting self-employed people.
3. Low Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is the amount of your monthly debt payments compared to your monthly income. Lenders want to see that you have a low DTI, which shows that you are not overextended and can afford to make your mortgage payments. Lenders are less likely to approve borrowers who are juggling multiple bills each month. In Harford County, most lenders require a DTI of 43% or less to qualify for a mortgage so be sure to get that spending in check before applying for a loan.
4. Adequate Down Payment
The down payment is the amount of money you put towards the purchase of your home. Lenders want to see that you have an adequate down payment, which shows that you have a vested interest in the property and are less likely to default on your mortgage payments. In Harford County, most lenders require a minimum down payment of 3-5% of the purchase price of the home when talking about FHA loans. Loans of this type will often require mortgage insurance to protect the lender. A conventional loan can require a down payment of 20%, but will not require insurance payments each month. That said, there are certain types of loans that do not require any sort of downpayment at all, however this may result in greater interest payments over time.
5. Property Appraisal
Lenders will require a property appraisal to ensure that the property you are purchasing is worth the amount you are paying for it. The appraisal is conducted by a third-party appraiser and will help the lender determine the loan-to-value ratio (LTV) of the property. In Harford County, most lenders require an LTV of 80% or less to qualify for a mortgage. Lenders will not fund loans if they believe you are paying too much for the property. The home will need to appraise at a value close to that in which you are paying in order for the deal to go through.
6. Reserves
Lenders want to see that you have adequate reserves to cover unexpected expenses, such as home repairs or a job loss. In Harford County, most lenders require you to have at least two months of mortgage payments in reserves. However, some lenders may require more depending on your specific financial situation. Now is the time to start setting these funds away if you haven’t already!
Getting approved for a mortgage in Harford County requires careful planning and preparation. By understanding the 6 things lenders are looking for when approving you for a mortgage, you can increase your chances of getting approved and securing your dream home. As top Harford County real estate agents, we are here to help you navigate the home-buying process and answer any questions you may have. Contact us today to get started on your home-buying journey! 443-616-5486