HOW TO QUALIFY

Job/Income History– The lender will look for at least 2 years of steady income from an employer. You must be in the same line of work for at least 2 years. Your income may include: alimony, child support, SSI, and VA benefits. Self-employed borrowers will have to provide 2 years of tax returns and a financial statement. 

Credit History– You don’t have to have perfect credit to qualify for a home loan. FHA lenders require a minimum “middle” credit score of *620. Conventional lenders are much more conservative requiring a middle credit score of at least 680.                                   

Down Payment  - FHA lenders require a 3.5% down payment. The funds don’t have to come from your personal assets, they can come from an immediate family member. Conventional lenders require as much as 15% down based on your credit score. All of the funds must come from the borrowers own assets.

Debit to Income Ratio- Lenders will want to see how your debt stacks up against your income. FHA lenders may go as high as 50% Debt to Income if the borrower has a good work history and has paid his or her rent/mortgage on time. Conventional lenders will rarely allow anything above 42% debt ratio.   

To qualify for an FHA Loan all applicants must have at least a minimum "middle" credit score of 620 to 640. (depending on the lender) A Conventional mortgage requires a minimum "middle" credit score of 680 to 700. In both cases the highest and the lowest scores will be disregarded. 

Banks and lenders use credit scoring as a major determinant to decide whether you’ll be approved for a mortgage, and also if you’re eligible for their loan programs to begin with. Typically, lenders will pull their own credit report regardless of whether you yourself pulled credit, or if your broker provided a credit report to the lender. They do so to eliminate fraud and any possible mistakes or omissions made by an alternative credit reporting provider.

Most lenders pull a ”tri-merge” credit report which contains credit scores from the three major credit bureaus. They will use the middle score. So even if you’ve got a great “high score”, it’s your middle score that’s ultimately used to determine financing terms and eligibility.

Another important issue to consider is that when providing full documentation, that is, tax returns or another form of verifiable income, the middle score of the primary wage earner will be used. This can help or hurt you depending on who has the higher credit score.

If you and your spouse apply for a loan, and the main "breadwinner" has a middle fico score of 620 and the co-borrower has a middle score of 720, the 620 will be used. The opposite is true if the borrower with the 720 middle score is the breadwinner.

Lenders allow this on the basis that the person making more money will ultimately be more accountable for the loan, and thus their credit score is more indicative of how the loan will be repaid.