What You Need To Know To Pre Qualify For Mortgage

Without doubt,  in today’s mortgage market your ability to pre qualify for mortgage  is based on your credit score.  In fact, a bad credit score is the major reason a mortgage is denied.  In an era of conspicuous consumption when consumers are using more plastic than ever, lenders are placing more emphasis on how well loan applicants manage the credit they have before granting them more.

Of the three types of 30-year fixed mortgages — conventional, FHA and VA — the conventional 30-year fixed  mortgage is by far the hardest to pre qualify for today. Most lenders require a credit score of at least 720 while many require a credit score of 740 or higher. In addition, they also require a 5% down payment. For many, the high credit score and 5% down payment are real obstacles not easily overcome. In addition, with a down payment of anything less than 20%, mortgage insurance will be required and the cost of it is steep especially with the minimum 5% down payment.  If, however, you have at least 20% down and a credit score of 740 or higher, the interest rate on a conventional 30-year fixed  mortgage is the lowest to be found.

For those with less than stellar credit and a minimum amount of down payment, there is good news. You can still get a 30-year fixed mortgage with an FHA (Federal Housing Authority)  insured loan.  You may even be able to pre qualify for an FHA home loan even though you have gone through a bankruptcy or a foreclosure. Bankruptcy’s must be at least two years old, with perfect credit since discharge. Foreclosure’s must be at least three years old, with perfect credit since. Also, you may be able to qualify for  FHA mortgage if you have no credit score.  If, however, you have established credit, you will normally be required to have a credit score of at least 620.  What makes an FHA 30-year fixed mortgage especially attractive to first-time buyers in particular is the low down payment of 3.50%.  With an FHA loan, there is mortgage insurance, but it is lower than that of a conventional loan. In addition to mortgage insurance, FHA requires an up-front mortgage insurance premium currently at 2.25%.  Fortunately, this amount can be financed by rolling it back into the mortgage.  FHA insured mortgages today represent over 50% of  home loans.

If you have served America honorably for two years in any of the armed services, you may be entitled to a GI home loan. This $0-down payment loan is a perk for service men or women, either active or discharged.  Service in Selected Reserves or the National Guard will also qualify if you served for 6 years. Also, the unmarried surviving spouse of a veteran who died on active duty or as the result of a service-connected disability is eligible for the VA home loan benefit. Qualifications other than active duty are similar to an FHA loan. With a VA home loan, there is no mortgage insurance but an up-front mortgage insurance premium is required.

Even though credit markets are tight, it is still possible to pre qualify for  mortgage be it a conventional, FHA or GI home loan.