ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How to Qualify For a Home Loan

Updated on March 4, 2013

A Home of My Own

Owning a home is a well established part of the American dream.
Owning a home is a well established part of the American dream. | Source

The Big Four

This is a timely topic because housing prices have certainly dropped during the world wide recession. What are the main things that banks look for? There are four main criteria:

  1. An adequate down payment. This could be as little as 3% and as much as 20%.
  2. Two years of consistent employment with the same employer or same profession.
  3. Two or three times more income than your required monthly payment (mortgage).
  4. Good to excellent credit. The experts say that you should be in the mid 600s range to qualify.

Best Case Scenario

In a perfect world, you get approved and then go shopping. It rarely works out this way, however!

In our scenario, Mr. and Mrs. Public get pre approved credit at their bank. Because they have excellent credit, they get a generous home loan with low interest rates. Pre-approved credit is the best kind of credit you can get, because you are walking around with a promissory note in hand, if you will. You know you can buy within the approved amount, which is a great feeling.

Many times, people find a home that they adore. It suits their purposes, it's in the right location for school, work and social reasons. Then they go to the bank to see what types of loans are available.


Rent or Own

Do you

See results

Lending Institutions

Bank

A classic bank is where most people start to apply. The rule of thumb is to apply two or three times for a loan. Most people end up paying more interest than they need to. Like a job offer, it's easy to settle for less. Be prepared to bargain, because a home loan is paid over a long period of time.

Most banks follow the Big Four listed above. They want to find a textbook lender so the risk of default is low to non-existent.

If you have good credit, you may easily qualify for a home loan. But even if you do pre-qualify, shop around as a matter of principle and see if you can beat the original offer.

Credit Union

Your credit union may offer the best interest rates and repayment options. If your company has membership in a Credit Union, inquire and apply. Credit Unions are traditionally a friendlier place to conduct banking business because it's structured as a club of co-investors and lenders, usually linked by a common industry (like teaching, fire fighting, etc). This alone lessens the "us versus them" mentality. You will still have to qualify, and will most likely have to pay with payroll deductions taken directly from your check, but the interest rate will most likely be very competitive.

"Bad Credit" lenders

These lenders exist for a reason - lots of people have bad credit. Some call them predatory, or even "Loan Sharks" but that's not necessarily true. Like all businesses, supply and demand. Due to the economic recession, many have lost their jobs and had to default on their credit, especially when the loan was higher than the house was worth. Unexpected illnesses can also get a person a bad credit history.

Naturally, with high risk clients, these firms charge a higher interest rate, fees and more fees, and a long term repayment plan. However, they provide an opportunity to make a bad credit good with due diligence. With time, the fees and interest should go down (since the risk has been reduced of default). If nothing else, it is something to consider. Most people feel it is better to buy (invest in a home) than rent - basically throwing away money every month.


Happy Home Owner?

This describes my situation:

See results

A Helping Hand

Mortgage broker - get an agent

Just like an actor without a role, you can get a mortgage broker to help get you into the world of home ownership. He or she is an expert in lending institutions, people who know and how to pass the gamut from applying for a loan to getting a mortgage. They will charge a fee, but sometimes it pays to have a guide in the jungle of home ownership.



Pride of Ownership

Even a single mother can afford her own flat.  A young woman and her son decorate their Brooklyn home.
Even a single mother can afford her own flat. A young woman and her son decorate their Brooklyn home. | Source

Where there is a Will...

This is the house my grandfather built in Bellingham, Washington.
This is the house my grandfather built in Bellingham, Washington. | Source

Owner Financing

This may not look like a loan but it is. You are lending from the seller and paying him back over a predetermined time frame.

Perfectly legal, this is an option that will probably be possible if the house being sold is not being used to purchase another. Supposing the owner is not in a huge rush for the money, a document may be drawn up, notarized and be held legally binding.

According to the norm, the buyer and seller sign the document that a certain amount of money will be paid - let's say 5 payments of $20,000 to keep things simple - and usually makes the first payment when the document is drafted. There will most likely be a stipulated time frame - five or ten years for example, that the final payment must be made. There is more than one way to go, and this is an option in a small percentage of cases. Nevertheless, it is one to consider if the owner is prepared to wait.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)