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How to Qualify for a Mortgage

Tuesday, July 11, 2023

How to Qualify for a Mortgage

One of the most common questions we get is how do I qualify for a mortgage?

I made a Tiktok video covering exactly how banks qualify you for a mortgage if you want to take a look at it.

Although every situation is different and there are different programs to qualify for, here is a breakdown of how banks qualify you for a mortgage.

It’s easy to remember with the acronym D.I.M.E.S.

S- Score as in credit score.

Minimum credit scores are 580 for FHA and 620 for a Conventional Mortgage. The better your credit score is, the better interest rate you can qualify for. To get the best rate you will need a 780 credit score.

E- Employment

You will need two years of employment with no gaps.
The banks will require your last two year tax returns and current paystubs.

M- Money

The bank will require your last three bank statements because they do not want you to borrow the down payment or the closing costs money. This will show the bank that the down payment money has been in your account for the past 90 days.

I- Income

Your monthly income is how the bank will qualify you for your loan amount. They will use two formulas to make sure you will qualify for your mortgage payment.

Front End Debt to Income Ratio

The bank will take your monthly income and multiply it by the maximum front end ratio formula for your specific loan type.

FHA 46.9%
Conventional 45%

Example: If you make a monthly income of $10,000 you can multiple that by 46.9% which will give you a monthly payment of $4,690 a month for a mortgage payment that has to include principle, interest, taxes and insurance.

If annual taxes are $9,000 and homeowners insurance is $1,500 your monthly payment for these two items are $9,000 + $1,500 = $10,500 divided by 12 = $875.

You then subtract that amount from your monthly payment amount $4,690 -$875 = $3,815.

At a 7.5% interest rate you can borrow $545,000 for a mortgage payment of $3,814.

D- Debt

The bank will also look at your credit report and add up all of your monthly payments from your credit report and add that to your monthly mortgage payment and then calculate your “Back End Debt to Income Ratio.” Here are the maximum back end ratios.

FHA 56.9%
Conventional 49%

The Sarmiento Sales Team

Andy, Damaris & Walter Sarmiento

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