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Minimum Mortgage Requirements

A mortgage is a loan on a house that is given to a borrower (mortgagor) by a lender (mortgagee). Once you sign the promissory note to borrow a loan, you've contractually agreed to pay the loan back in the form of monthly installments made to the lender over a set period of time. This period of time - known as the loan term - can be 5, 10, 15, 20, 25, or even 30 years into the future.

The amount of the monthly payments due largely depends on the loan amount you borrowed, the length of time to which you're obligated to pay it back, the interest charged, and how much of a down payment you initially contributed.

The Necessary Paperwork

To be approved for a loan, you will need to hand in the following information:

  1. Credit report: The larger the amount you borrow, the higher the risk that you present to the lender based on your credit report (which details your repayments of debt).
  2. Income (pay stubs): To measure how capable you are in paying off the monthly payments as well as any other form of debt.
  3. Proof of employment: Your lender needs to know if you have a stable job to measure how much of a liability you're going to be. If you are self-employed, you need to give any form of documentation that demonstrates the stability of your career. 
  4. W-2s (from the last two years): Where your gross monthly income goes (i.e. credit card debt, vehicle debt, taxes, alimony, child support, etc.) will play a major role in the loan amount to which you're eligible to borrow.
  5. Social Security number: Your lender needs to confirm that you are who you say you are.

Minimum Mortgage Requirements 

  • Preapproval.
    Preapproval (not to be confused with prequalification) will be based on the information you handed in earlier.
  • 20% down payment.
    The bigger the down payment you contribute, the more home equity you'll acquire and the more ownership you'll have. Most lenders will allow down payments of less than 20% if a client has an "excellent" credit score. If you have a poor credit score and can't make a 20% contribution, FHA and VA loans allow for down payments of 3.5% or less.
  • Debt-to-income ratio.
    The amount of debt you owe on a monthly basis will demonstrate how much of a liability you're going to be. Lenders and brokers use the debt-to-income ratio to calculate how able you are to pay off the loan's outstanding balance. If your debt-to-income ratio is higher than 36%, you will less likely be able to afford a bigger loan. Need to know how much house you can afford? Click here.
  • Credit score.
    The higher your credit score, the bigger the loan that you can borrow. A credit score of 720 and up will land you the best mortgage deals on the market. The lower your credit score is, the smaller the loan amount you can qualify, and the higher the interest rates that will ensue on your loan.

All set? That's great! After being pre-approved, the next step is to close the loan and claim your the keys to your new home! Learn about what's involved in closing a loan here

Lots of new words? Consult our comprehensive mortgage glossary to clear any confusion.

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