What Determines if I Get a Home Loan?

Pre approved buyers already know what they can spend.
i Thinkstock/Comstock/Getty Images

The recession may have reduced your income and raised the cost of living but at least interest rates are down. There are several ways to go about securing your home loan and each has its own determining factors for approval. Before applying, know what options are out there and how to best manage your own financial situation so that you get the home loan you need.

Bank Issued

Bank issued home loans are disbursed to clients who meet the individual standards as set by the bank in question. By law banks are not allowed to discriminate between clients and must issue loans to all those who qualify, but they are free to determine the financial requirements as they wish. Bank loan officers will calculate your eligibility based on your current income, time at your job, your past credit history and FICO scores, the amount of total debt you hold besides the home loan itself, the appraised value of the property and the amount of down payment you will be providing. If the property is priced accurately as compared to its market value and your financial house is in order, the bank may issue a pre-approval letter that can be used when shopping to demonstrate your ability to secure a loan and your status as a serious buyer. An online mortgage calculator can help to determine your eligibility.

VA Loans

The U.S. government provides special loan agreements to current and retired military personnel. The Department of Veteran's Affairs backs and distributes home loans based on need and status. To qualify you must have served for at least 90 days on active duty or 180 days on peacetime assignment. Enlisted service members who served after 1980 must have done so for a period of at least two years, as do officers who served after 1981. Once your status has been proven and a certificate of eligibility is issued, you must also meet the financial requirements of the loan. Your income must be judged sufficient to make the payments and your credit history must be without serious delinquency or other issue.

FHA Loans

Federal Housing Administration loans have special programs for those who qualify. FHA loans have lower down payment amounts, fewer closing costs and fees, special assistance in case of failure to pay or loss of income and less rigorous requirements than standard bank loans. To qualify for an FHA loan you must be a U.S. citizen with a valid Social Security number. You must prove sufficient income to pay the loan installments in addition to any other outstanding loans you may already have. You are also subject to a credit check but you cannot be denied based on your score. The score is used only as a reference point when calculating the interest rate of your loan. Expect to pay about 3.5 percent down if you are accepted into the program. FHA loans are recommended for buyers who do not have the best financial background and lower income candidates who are purchasing their own home.

State Assistance

Most states have government backed lending programs, new homeowner assistance programs and special rates for first time buyers, all designed to promote home ownership and economic recovery. Check with your state Department of Housing for information on what programs exist and how to qualify.

the nest