When you’re in the market for a home mortgage, choosing the right mortgage option is important. Did you know that even if you don’t own farmland, you may be eligible for a USDA home loan? On the opposite side, even if you have a decent credit score and can easily pay EMIs, you might not qualify for a mortgage loan if your lender doesn’t believe that you can repay it.
Here are the most common factors that lenders look at when deciding whether to approve your application.
Down payment requirements vary significantly by lender and loan type. You will need to check with your lender to determine what their requirements are. Down payments of at least 20% are common, but there are some cases where you will need much more than that.
A Credit score is not an accurate measure of creditworthiness, but it impacts your ability to receive loans. Lenders use credit scores to determine how risky it would be to lend you money and at what interest rate. Credit Scores are calculated based on how you’ve paid back any loans or credit cards in your past. This score may range from 300-850 points and determine how much debt you owe and whether you pay your bills on time.
Loan types can vary depending on how long it will take you to pay off your mortgage. The most common types of mortgages are 30 year and 15-year mortgages. Most people opt for 30-year mortgages because they’re more affordable, but there’s still something to be said about getting out of debt faster by opting for a 15-year mortgage. Rates and terms also play into what type of mortgage you’ll want to go with.
Eligibility for USDA Loans
USDA loans are available to anyone who wants to buy land that is at least 10 acres or less. However, there’s no capping on full land. This type of mortgage is commonly known as a rural housing mortgage. USDA mortgage rates will be based on an independent third-party appraisal of your property. Household income must satisfy specific criteria to become eligible for certain USDA loans. In addition, the house must be in an acceptable rural region as specified by the USDA. In some cases, even if you don’t own farmland, you may be eligible for a USDA home loan.
Eligibility for Fixed-Rate Mortgages
A fixed-rate mortgage often comes with an interest rate that stays unchanged throughout your entire loan term. It means you don’t have to worry about paying more money when interest rates go up, but it also means that you’re not taking advantage of lower rates if they come down.
- You should have at least 20% of your loan in liquid assets that you can use to cover your payments during temporary periods of unemployment or other financial setbacks.
- If you have too high debt relative to your income, you will not qualify for a fixed mortgage.
Eligibility for Adjustable Rate Mortgages
Your eligibility for adjustable-rate mortgages is primarily determined by how long you plan to stay in your home.
- If you plan to stay in your home for less than one year, it may be best to consider an interest-only mortgage.
- Alternatively, if you plan on staying in your home at least three years before moving elsewhere, an adjustable-rate mortgage would be ideal since rates will fluctuate over time.
A potential home buyer‘s mortgage eligibility is determined by their credit score, debt-to-income ratio, and down payment. One of these factors, being lower than 30%, will influence your eligibility for specific mortgage plans.