How do you qualify for a mortgage loan? Here are important metrics that determines your mortgage APR and maximum mortgage amount.
- Proof of income
- Whether your income is documented or has evidence such as tax report or company pay stub. Nowadays it is very difficult to receive a loan without proper document/evidence for their income.
- Credit score
- Contributes to mortgage APR. Higher credit score means better APR.
- Monthly payments and monthly gross income
- For each mortgage loan category (First Housing Administration a.k.a. FHA, Veterans Affair a.k.a VA, Conforming, Super Conforming, Jumbo), a law dictates the maximum monthly payment ratio against your monthly gross income (called “debt-to-income ratio” or “DTI ratio”). Maximum DTI ratio allowed for Conforming, Super Conforming, and Jumbo loan is 45% or less. For example, if your total monthly gross income is $1,000 and your total monthly payment is $150 (car payment – $100, student loan – $50), then your maximum monthly allocation for a mortgage is $300 ( ($150 + $300)/$1000 = 45%). Then this number is used to determine your maximum mortgage amount along with your mortgage length (i.e. paid in 30 years), mortgage loan type, and mortgage APR.
- House category in legal terms
- To get the best rates with optimal credit history, a buyer will be asked at least 20% down payment for a single house (in legal terms) and at least 25% for a non-single house. 20% – 25% down payment on a non-single house will result in mortgage APR by ~0.25% higher compared to ones from best rates. (link)