During the process of trying to get a pre-approval for a home loan, you will be asked some basic questions. A few common and connected questions are all relative, no pun intended.
What is your marital status?
If you are married, you will be asked if you want your spouse as the co-borrower if you have a conventional, VA, USDA, or FHA home loan. If you are living in a community property state, your spouse will automatically be included on the loan, whether you want them to be or not.
If you live in one of the following states, your spouse will be included in the application, and if they do not have a social security number, or they have a poor credit score, they can prevent you from being qualified. These community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Wisconsin, and Washington State (where Seattle is, not where Washington DC is).
One of the good things about having your spouse on the loan is if they are making a good income, this will increase your overall Debt to Income (DTI) Ratio if your income is combined and you are sharing current financial responsibilities. Also, if your spouse is receiving any external financial support (disability, social security, alimony, etc.), it can be counted as income towards being qualified for a loan.
If you are only engaged, you can still list your soon-to-be spouse as a co-borrower on the USDA and FHA home loans. The only time you can list a fiancée as a co-borrower for the VA home loan, when you are not yet married, is if you both served enough military time to qualify. If you are in a community property state and about to go through a divorce, a good lender should still be able to help you – you just need to clarify your situation and may need to provide a letter of explanation.
Do you have children?
If you have dependent children, this will be a factor to consider when approving a family for a loan. You won’t necessarily be asked how much you pay to take care of the kids (except if you pay child support), but for any loan, whether children are involved or not, you will be asked for information on the rent you pay currently and any savings you have put aside.
If there is going to be an instance of payment shock, AKA a mortgage causing the family’s cost of living to go up by a drastic amount, then this combined with the fact a couple has children along with no assets put aside can result in a denial. A good lender will not put the family in a poor situation in which a mortgage cannot financially be handled, at this time.
Are you paying child support or alimony, or receiving it?
As previously brushed upon in the section on marital status, the receiving of child support and alimony is helpful you when getting approved for a home loan. It shows, when you receive it, that you are getting assistance with your bills, and your DTI will be positively affected. You will be asked for supporting documentation showing how much you get and for how long this support will take place.
Paying child support or alimony will not necessarily prevent you from getting a loan. It will depend on how much you take in for income and how much you already spend on monthly obligations, then this income will be paired up with the support you provide.
What’s a good indicator if alimony or child support will prevent you from being pre-approved? Take your gross monthly income, AKA what you receive before taxes are taken out, then subtract any rent paid, any loans you pay monthly, and then the child support or alimony, where applicable. If you end up with less than forty percent of your income being disposable, it may give you a poor outcome in getting approved, but it is always a case-by-case situation.
At Federal Home Loan Centers, we’re the best source for helping you find the bright side of any financial situation. Call us at 877-432-5626(LOAN) or tweet us at @FedHomeLoan to see if we can get you approved!