Transcript
If you think you can't qualify for a mortgage in 2025, you're probably wrong. And that misconception is costing you thousands of dollars every month you keep renting. I'm about to show you the exact numbers lenders actually use, not the scary stories you hear online, and three specific strategies that could help you get preapproved even when your credit isn't perfect. Hey everyone, it's Matt Joll. I'm an independent mortgage broker with 25 years experience and I'm here to help you make informed decisions. Look, I get it. With interest rates where they are and the elevated home prices in Portland, Vancouver, Washington, and all across the Pacific Northwest, it feels like home ownership is slipping further away every day. But here's what's actually happening. Well, everyone's focused on the scary headlines. Qualified borrowers are still getting approved and closing on homes every single week. the difference. They know real qualification rules, not the myths. In the next few minutes, I'm going to break down exactly what lenders look for in 2025. We'll cover the magic debt to income ratio, also known as DTI, that most people get wrong, the credit score myth that's keeping good buyers on the sidelines, and why thinking you need 20% down is probably the biggest mistake you can make right now. Plus, I'll share the five costly mistakes people make right before applying. mistakes that could kill your approval, even if you're otherwise qualified. And if you're anywhere in Oregon, Washington, or Idaho, this applies to you because great news, I'm licensed in all three states. By the end of this video, you'll know exactly where you stand and what to do next. So, if you're serious about buying a home in 2025, keep watching because this could be the difference between renting for another year or getting your keys. Section one, the foundation, understanding your debt to income ratio. First up, let's talk about DTI. This is probably the single most important number lenders look at right after your credit score. Simply put, your DTI is the percentage of your gross monthly income. That's your income before taxes that goes toward paying your debts. The formula is pretty straightforward. total monthly debt payments divided by gross monthly income times 100 equals your debt to income ratio percentage. So what counts as debt? Credit card minimum payments, not what you actually pay, but the actual minimum payment is all the lender looks at. Car loans, student loans, personal loans, and most important, your new estimated mortgage payment. That's your principal, interest, property taxes, homeowners insurance, and mortgage insurance if it's applicable. Also called PITI. Now, what doesn't count? Utilities, groceries, your cell phone bill, unless it's on a payment plan that reports to the credit agencies. Now, what's a good DTI? For most conventional loans, lenders typically want to see your max debt to income ratio around 43 to 45%. But here's a key point. FHA and VA loans can actually go higher, sometimes over 50%, which can be a huge advantage for some buyers. Let's do a quick example. Say you make $9,500 gross monthly income. You have a $500 car payment, $200 student loan, and $100 in credit card minimums. That's $800 in existing debt. If your new estimated mortgage payment is $2,800, your total debt would be $3,600. Divide $3,600 by $9500 and you get roughly 38% DTI. You're looking good for approval. But if your current debts were higher, say 1,600 a month, and your new mortgage payment was 3,800 a month, that's 5,400 in total debt. Divide that by 9500 gross income and you're about 57% on your debt to income ratio. In that scenario, you'd likely be denied for a conventional loan and more than likely denied by FHA as well. Actionable tip: calculate your own DTI right now. If it's looking high, focus on paying down those credit card balances or smaller personal loans before you apply. It makes a huge difference. Section two, cracking the code. Your credit score. Next up, your credit score. Think of it as your financial report card. It's how lenders assess how responsibly you've managed your debt in the past. So, what's considered a good score for a mortgage? For conventional loans, you typically need a score of 620 or higher. But if you want the best interest rates, aim for 780 or above. FHA loans are more flexible, often allowing scores down to 580 with a three and a half% down payment and sometimes even as low as 500 if you have at least 10% down. For VA and USDA loans, while they technically don't have a minimum score requirement from the government, most lenders, including myself, usually set their own requirements around 620. Now, how can you improve your credit score quickly? Pay your bills on time every time. Just one late payment can significantly hurt your score. Reduce your credit utilization. This is huge. Keep your credit card balances below 30% of your credit limit. Even better if you can get them down to 10 to 15%. Don't close accounts. This can actually hurt your score by shortening your credit history. Check your credit report for errors. You can get a free credit report annually at annualcreditreport.com. Dispute with anything that looks wrong and avoid opening new credit accounts right before applying for a mortgage. More on that in a moment. Actionable tip. Get a free credit score estimate from sites like Credit Karma or through your bank's apps. Now, here's something important about Credit Karma. A lot of folks use these, but no lenders actually use their credit scoring model for mortgage decisions. But here's what you can count on. If that Credit Karma score goes up, your actual mortgage credit score has gone up, too. And vice versa, it could go down. So, it's a great tool for tracking your progress. Just don't expect the exact number to match what the lenders see. Section three, down payment demystified. Debunking the 20% myth. This one is big. Everyone thinks you need 20% down to buy a home in the Portland metro area. the Seattle metro or markets like Boise, 20% of the average home price is hundreds of thousands of dollars. It feels impossible for most people, but here's the truth. This is one of the biggest misconceptions in home buying. You absolutely do not need 20% down for most mortgage loans. Let me break down some fantastic options. FHA loans, great for first-time home buyers and for those with lower credit scores. you only need 3 and a half% down. Now, you still need to cover closing costs, but that's much more manageable. For our veterans and active service members, VA loans allow for 0% down payment. And a huge bonus on top of it, no monthly mortgage insurance. That's an incredible benefit. Or if you're looking in eligible rural areas across Oregon, Washington, or Idaho, USDA loans also offer 0% down payment. Even some conventional loans now allow as little as 3% down for eligible first-time home buyers. Now, while I don't directly handle down payment assistance programs as a broker, it's absolutely worth researching what's available. Many states and local communities offer various forms of down payment help. I always encourage my clients to explore what might be available in their area, whether through state housing agencies or local government programs. Actionable tip. Do not let the idea of a huge down payment stop you from exploring home ownership. Research these low and no down payment options. You might qualify for more help than you think. Section four, proving your income stability and verification. As a mortgage broker, I want to see one thing when it comes to your income. Stability. Lenders want to make sure you can consistently make your mortgage payments. If you're a W2 employee, lenders will typically ask for your last two years of W2s, your most recent 30 days of payubs, and we will do a verification of employment directly with your employer. Lenders like to see consistent employment, ideally for at least two years with the same employer or in the same line of work. If you're self-employed, this gets a little more complex. I will typically need your last two years of personal and business tax returns and sometimes a year-to-ate profit and loss statement. The complexity comes because lenders often use your net income that's after deductions, not the gross. But there are a lot of tricks that can come into play with self-employed income. This is where an experienced broker like myself can make a huge difference in structuring your loan to maximize your qualifying income. We can also use other types of income like bonus, commission, overtime, disability, retirement income, alimony, or even child support, but each requires specific documentation and often a history of consistent receipt. Actionable tip. Start gathering your income documents now. If you're self-employed, talk to your accountant about how your tax deductions impact your mortgage qualifying income. It's a great conversation to have. Section five, red flags. What not to do before and during the mortgage process. This section is absolutely vital. It's where many people accidentally sabotage their mortgage approval without even knowing it. These are the major don'ts once you're thinking about applying for a mortgage. Do not apply for any new credit. No new credit cards, car loans, furniture financing, or buy now pay later deals. Even if it's 0% interest, each inquiry can ding your credit score and any new debt changes your DTI ratio. Do not make large purchases on credit. Avoid buying a new car, furniture, or major appliances on credit. Wait until after your loan closes and you have the keys. Do not quit your job or change careers drastically. Income stability is key. If you must change jobs, make sure it's in the same field or with similar or higher pay and discuss it with your mortgage broker immediately. Do not make large undocumented cash deposits. Lenders need to source all large deposits to ensure they're not borrowed funds. Lenders will do this using the last two to three months of bank statements. Keep clear, traceable records. Do not cosign for anyone, even helping a friend or family member. That debt counts against your DTI. Do not miss any payments. Even one late payment can significantly drop your credit score right when you need it most. Section six, your action plan. What to gather before you call me. Wow, we've covered a lot of ground today. Here's your homework before you reach out to start your mortgage journey. Having these documents ready will make your preapproval process smooth, fast, and accurate. your last two years of W2s or tax returns if you're self-employed. Your last 30 days of payubs, your last two to three months of bank statements depending on the lender. That's your checking, savings, any investment accounts and retirement accounts. And don't worry about gathering credit card statements or any other debts as those items will be imported when I run your credit report as long as you have an idea of how much and what the minimum payments are for our initial conversation. And it's helpful if you have a rough idea of the home price range you're targeting here in Oregon, Washington, or Idaho. Getting preapproved for a mortgage is the first and most important step in your home buying journey. Don't try to go at it alone. As an independent mortgage broker with 25 years experience, I specialize in navigating the housing markets across Oregon, Washington, and Idaho, finding the right mortgage solutions for your specific situation. Are you ready to talk about getting preapproved and the path to home ownership in 2025? Click the link in my bio to schedule a free no obligation consultation with me. We'll go over your specific scenarios, answer all of your questions, and get your mortgage ready. What's your biggest question or fear about getting approved for a mortgage right now? Whether you're in Portland, Vancouver, Boise, or anywhere else in Oregon, Washington, or Idaho, let me know in the comments below. I read every single one. Now, if you found this video helpful, hit that like button and subscribe to my channel for more real talk about mortgages in the Pacific Northwest housing market. Thanks for watching and I look forward to helping you achieve your home ownership dreams in 2025.