What You Need to Know About Qualifying for a Mortgage in 2020
Buying a home is one of the most exciting milestones in life. From house-hunting to qualifying for a mortgage, you’ll have a busy but fun road ahead.
With fluctuating interest rates, different housing market conditions, and varying qualifications for buyers, mortgage requirements can vary from year to year.
This guide will go over everything you need to qualify for a home loan in 2020.
Let’s get you up to date on mortgage eligibility, how to get the best interest rate, and into a home, you can afford.
Qualifications for Buying a House in 2020
When you’re getting ready to buy a home, there are some important first steps you should do to help make the process easier and more streamlined.
Most importantly, to qualify for a home loan in 2020, you need to have a handle on your finances. Doing a little personal finance homework can help you learn more about how much you can afford and your different down payment options.
In order to know an estimate of how much you will qualify in 2020, you’ll need to know how much money you have coming in and out each month.
You will also want to think about how much of your savings you would like to use for a down payment.
How Much House Can You Afford?
Affordability is one of the main factors in determining which home you end up purchasing.
Before you start shopping for a home in 2020, you’ll need to know how much house you can afford. Even more importantly you’ll need to think about how much you’d like to spend.
If you estimate you can afford the mortgage on a $200,000 home, for example, but you’d like to only spend $150,000, this will be helpful to know in your home search.
To help you get this number, write down all of your income. You should then write down all of your fixed expenses. If you need to make some changes, now is a great time to do so.
If you know you want to live in a certain area where home prices are high, you should also start to think about your must-haves in a home. This will help you determine how much you want to spend and what you may need to compromise on.
Debt to Income Ratio: 2020 Federal Loan Guidelines
How much you can afford depends on your monthly income and your debt to income ratio. Depending on the year, where you live, and the market conditions, your lender’s guidelines for a good debt to income ratio may vary.
Your debt to income ratio is how much debt you have in comparison to your income. The higher your income and the lower your debt, the better the ratio you have. A high debt to income ratio will result in a higher interest rate and less favorable lending terms.
If you want to lower your debt to income ratio in 2020, there are a few things you can do that will make a big impact on your mortgage qualification.
If possible, try and lower your debts as much as you can before applying for a mortgage. You can do this by paying off your credit cards and resolving any open accounts where you owe money.
In 2020, the Federal Housing Administration set new guidelines for FHA borrowers.
In 2020, your debt to income ratio must be below 43%. This means that in order to qualify for an FHA loan, your debts can’t exceed 43% of your income.
What Your Credit Score Needs to be in 2020
Your credit score plays a big role in qualifying for a mortgage in 2020. If you don’t know your credit score, the FTC allows you to download a free copy of your score each year.
When you’re starting the home buying process, you should try and pay down your debts and check your credit report for any errors.
Boosting your credit score will help you get a lower interest rate. By decreasing your debt to income ratio before you start applying for mortgages, within a few months, you should start to see your score increase.
In 2020, the FHA set new guidelines for credit scores. You must have a FICO credit score of 580 or above with a 3.5% down payment. With a 10% down payment, your score must be between 500 and 579.
Take the First Big Step
One of the first steps to qualifying for a mortgage is to get a pre-approval letter from your lender. A pre-approval letter will show home sellers that you are serious about purchasing a home.
A pre-approval letter also means that you have been vetted by your lender as a candidate for a loan.
During the pre-approval process, you will have your credit pulled, you’ll also need to submit basic information about yourself and your income. You’ll also need to start gathering paperwork such as your tax statements, W-2s, 1099s, and other records of your income.
You will likely also need to submit your bank statements and you may even be given some homework in paying off debts or resolving some issues on your credit to help get your loan approved.
By doing all of this in a prequalification, you’ll have a much better idea of what you can really afford and how much you’d like to put in for a down payment.
2020 Mortgage Interest Rates
According to Nerd Wallet, in 2020 mortgage interest rates should be around 4% APR for the year.
For many homebuyers, this is a great sign that they are able to get into the housing market and purchase a home this year.
Qualifying for a Mortgage in 2020
When it comes to qualifying for a mortgage and the qualifications for buying a house in 2020, the main thing you should start with is to get your finances in order.
By taking a closer look at your income, your expenses, and your debt, you’ll be able to take the first steps toward home-ownership.
As for how to qualify for a home loan in 2020, if you can keep your credit in good standing, and keep your debt to income ratio low, you’ll have much better chances.
The real estate market will be strong in 2020 and with low-interest rates, it can be a great time to buy your first home. For more home, décor, and real estate tips, check out the lifestyle section for some helpful reads.