With the rising prices of properties and other assets in the country, it is almost impossible to acquire a property for yourself without any outsourced assistance with funding.
At the rate of inflation between the 1900s up to now, purchasing a property that usually takes a blue-collar worker 5-10 years worth of saving will now take up to more than 30 years of continuous work before an average blue-collar worker can even make a down payment to start owning a home.
With this being the case, taking out a loan from a private institution, organization, or bank or getting assistance through your place of employment or federal funding has been the best option to be able to buy a house and acquire a property. With how common it has become, home loans have been dubbed as taking out a mortgage and as of 2022, more than half the U.S population are paying for mortgages for their or their relatives’ property.
A common mistake aspiring homeowners make is jumping towards the process of applying for a loan immediately and then getting demotivated when they find out they don’t meet the minimum requirements.
This is why it is best to prepare your qualifications first before consulting on what mortgage or loan plan is the best for you. While the requirements of different banks and institutions vary, there are three basic things that you would need to have before you can even begin thinking about applying for a home loan.
- Good Credit Score
This is the most important requirement in getting a loan so it is only fitting that we explain it first.
A credit score is a number between 300 to 850 that determines your creditability. Banks and institutions look at your past transactions such as on-time payments of previous credit cards, and loans, if you pay all of these on time and follow the agreed-upon terms, cross-reference your income to the total amount of debt that you currently have.
Depending on how good all your background information is regarding your finances, they then give you a score wherein 300 can be the lowest and 850 can be the highest.
Following this, a credit score of at least 620 is best when you apply for mortgages from private organizations and banks will accept for you to be able to qualify for a loan. Their main reason is that the height of your credit score is directly related to your capability to pay, and banks don’t want to invest in giving out a loan unless they’re sure they will get their money back. Before considering buying property and applying for a loan, make sure your credit score is up to avoid any hassle!
- Proof of Employment
Next on their list of requirements would be for you to be able to prove that you have a stable means of income.
Whether this is you being employed in a government or private institution, owning your own business, or working in unorthodox means such as freelancing, you need to be able to prove to them that you will have a steady means of income for the duration of the payback agreement of the home loan or mortgage.
The best way to do this is to be able to show proof that you are currently employed by an organization/corporation or classified as self-employed. With this requirement, there are no specifics stated such as needing to be employed for a certain period of time. Just make sure that you are employed/self-employed at the time of your home loan/mortgage application and your chances for mortgage approval and pre-approval would be quite high.
- Income Statement
Last but not the least, besides your proof of employment, they need to know how much you make to assess how much you’ll be making within the next few years as the main basis for the amount of the loan that will be granted to you as well as a repayment plan that you will be approved for. This requirement does not determine your eligibility but helps design the mortgage/home loan that is specific to your income and your situation.
For this specific requirement, their minimum is seeing that you have had a stable means of income for the last 6 months to 1 year. So before thinking of applying for a loan, make sure that you have income proof of income 1 year prior to your application so that you’ll be considered a strong candidate.
As you look and prepare these requirements before putting in an application for a mortgage or a home loan, remember that the keywords are: Capability to Pay. All the requirements, qualifications, and other documents that they may require from you are centered around their need to be assured that you have the capability to pay the amount of money they will be lending you. Focus on making sure your documents highlight that you are indeed capable to pay and are responsible for your finances and you shouldn’t have anything to worry about when the time to apply for a loan comes.