How to Qualify for a Mortgage Loan in 2010

Thinking about buying a home next year? Need a mortgage to help pay for it? If so, you should review the checklist below to make sure you have what it takes to qualify for a mortgage loan in 2010.

It’s Harder to Qualify for a Loan These Days

We will discuss how to qualify for a home loan in just a moment. But first, I want to give you a bit of history on this subject. A few years ago, it was much easier to qualify for a mortgage than it is today. You can probably guess the reasons why. It has a lot to do with the housing crisis and subsequent recession that derailed our economy. As a result of that fiasco, lenders today are less willing to take risks when making loans. This means you need to have your financial ducks in a row before you start applying for loans. The next section explains how to do this.

How to Be Mortgage “Worthy”

So, how do you qualify for a mortgage loan in the 2010 economy? What should you focus on right now, in the present, to increase your chances of home ownership in the future? Above all else, you should work on the following things:

1. Start saving cash. The more, the better. It’s nearly impossible to qualify for a mortgage today without a decent down payment. Even with an FHA loan, you’ll still need at least 3.5% down. You’ll also need money to cover your closing costs, which could add up to several thousand dollars. Lenders will want to know how much you have in the bank to cover these things. So if you want to qualify for a mortgage, you need to start putting extra money aside. Start today!
2. Check your credit score. The days of subprime mortgage loans (for people with bad credit) are behind us. At least for now. If you want to get approved for a home loan in 2010, you’ll need a good credit score. “Good” in this context means having a FICO score higher than 650. And that’s just to get your foot in the door. If you want to qualify for the lender’s best rates, you’ll need an even higher score — probably a 750 or above.
3. Boost your score if necessary. If your credit is bad, you should start working on that ASAP. Improving a credit score is a fairly straightforward process, but it does take some time. So the sooner you start working on it, the better off you’ll be when you try to qualify for a loan.
4. Reduce your debt. When it comes to buying a home, carrying a lot of debt can hurt you in two ways. For one thing, it can lower your credit score. That’s because the scoring models take things like credit card debt into account. Having too much debt will also raise a red flag with lenders. On the contrary, you’ll be more likely to qualify for a mortgage loan if you have low debt (relative to your income).
5. Maintain a work history. If you move from job to job a lot, and you have periods when you were out of work, you’ll have a harder time qualifying for a home loan. In terms of work history, the ideal borrower is one who has held the same job for at least two or three years (and with steady income). So if you’re thinking about a career change around the same time you want to buy a home, you might want to put the job move on hold until after you’ve closed on the home.
6. Buy within your means. In the past, many lenders were willing to let borrowers push the envelope, in terms of loan affordability. As a result, many people took on mortgages that stretched their paychecks to the limit. But this kind of lending led to the foreclosure crisis we saw in 2008 – 2009, so it’s not very common anymore. Establish a realistic budget for yourself, based on your net monthly income. And then apply for loans within that range.

The last item on the list is most important. Not only will it improve your chances of qualifying for a loan, but it will also help ensure your long-term success. Many homeowners fail to establish a monthly budget for themselves. They trust the lender to do it for them. But this is NOT the lender’s job or responsibility. They sell loans … that’s it. They do not care much about your long-term financial success. So before you start talking to mortgage companies, you need to establish a budget and a monthly spending limit for yourself. How to qualify for a mortgage and how to afford one are two different concepts entirely.

Remember, it’s possible to get approved for a loan that’s simply too big for you. It happens all the time, which is why we have so many foreclosures right now. So take the proper steps in their proper order. Do your financial homework. Establish a budget for yourself. And then start getting mortgage quotes.

That’s how to qualify for a mortgage loan in 2010. Follow the advice presented above, and you’ll have a much better chance of getting a good loan with a decent interest rate. Good luck.