There is no simple answer to your question because the equation mortgage lenders use contains more variables than you mentioned. Allow me to explain.
A mortgage lender wants four qualities from a potential customer: Steady income, a relatively clean recent credit history, a debt-to-income ratio of 35% or less, and a down payment. Customers who qualify for a mortgage have all four of these qualities. See the Bills.com resource Mortgage Basics to Know Before You Apply for a Loan for a longer discussion of these issues. The two least understood are credit history and debt-to-income ratio.
Credit Score
When it comes to a credit score, the bigger the better. The FHA has some programs for people with credit scores as low as 580 but they are disappearing fast. Today, the minimum score for Fannie Mae and Freddie Mac is 620. These numbers vary with market conditions.
Go to AnnualCreditReport.com to get a no-cost, no-obligation copy of your credit report from each of the three major consumer credit reporting companies (commonly called “credit bureaus”). Review your report and dispute any inaccurate listings.
To find out more how your credit score is calculated I recommend you read an article I wrote explaining FICO Score Calculation. This should give you a much clearer understanding of how credit scores work.
Debt-to-Income Ratio
Lenders calculate and analyze your debt-to-income ratio to determine the size mortgage you can afford. See DTI: Debt-to-Income Ratio Information to learn how to calculate your debt-to-income ratio. See also Bigger Down Payment or Smaller Existing Debt? for an in-depth exploration of this issue.
You should be able to qualify for a mortgage if you have a steady income, the minimum credit score the mortgage lenders require, and a low DTI.
Qualify for Mortgage
Download a Uniform Residential Loan Application (Form 1003), complete it using these scenarios:
- High down payment and high credit card debt.
- Low down payment and low credit card debt.
- Some combination of the above.
Which of these scenarios results in an application that will qualify for a mortgage? Take the most attractive application and start mortgage shopping. Go to the Bills.com mortgage saving center for no-cost, pre-screened quotes from mortgage lenders.
I hope this information helps you Find. Learn & Save.
Best,
Bill
Comments (2)
March 04, 2010
March 03, 2010
My husband and I bought a home we can afford. The problem is that we bought in an area an hour away from our place of work and from our friends and family. Now, we are looking to start a family but we owe more on our house than what it's worth. We cannot sell our house, and we wanted to know about the possibility of purchasing another house closer to work and renting this current one out until we can sell. Our question is, would a lender lend to us even though we already have a mortgage for our current house, and even though our mortgage is more than the worth of our current house? Thanks for your time!
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It is impossible for me to give you a yes or no answer to your question. Review what I wrote above and follow the steps I outlined: Complete a Form 1003, run the numbers on your wages and expected rental income, and shop for a mortgage. Your circumstances may allow you to qualify easily, or you may not. The numbers will tell the story.