Qualifying for a Home Insurance in 2019 – What Requirements and Guidelines You Need to Know

1) How much down payment do I need?

In the recent past, people used to think that a 20% reduction was necessary to qualify for a home insurance or get a reasonable mortgage payment. For the most part, this is no longer the case. There are many types of mortgage programs that offer low or no down payment options in some cases. You also don’t have to be a first-time home buyer to qualify for these programs either.

FHA insurances are one of the most popular types of mortgages offered in today’s market, mainly due to their low repayment options and flexible qualification requirements. Without the help of the down payment, all you need is 3.5% minimum. Many people think that FHA insurances are strictly for first-time home buyers, but that’s not true. It is a government backed home insurance, but it does not require you to be a first time home buyer. FHA stands for Federal Housing Administration.

Conventional insurances have gained a lot of momentum over the past few years and will soon replace the FHA as the most popular insurance product on the market. Conventional insurances allow for a minimum down payment of 3% as well and also allow many innovative ways to purchase monthly PMI (Private Mortgage Insurance). This strategy helps reduce monthly payments while increasing your purchasing power.

The minimum down payment requirements for each type of insurance are below:

VA Insurances – No Down Payment Required
USDA Insurances – No Down Payment Required
FHA Insurances – Minimum 3.5% Down Payment Required
Conventional Insurances – Minimum 3% Down Payment

You can use gift money for any of the above programs. Also, if you are a first-time home buyer, be sure to ask your insurance advisor if you qualify for any down payment assistance program.

2) What credit score do I need to qualify for a mortgage?

Aside from the income verification, one of the biggest determining factors in qualifying for a mortgage is your credit score. The higher the credit score, the better your chances of qualifying. When a mortgage company or bank checks your credit for a mortgage application, they will pull what is known as a triple consolidation. This is when the credit report is combined with data and individual scores from the three major credit bureaus. Equifax, Experian, and TransUnion. The middle of the three points will be used to determine your qualifying score. Ideally, you want an average credit score of 680 or higher. In most cases, the higher your credit score, the better your rate and terms will be as well.

There is a minimum credit score requirement for every insurance program, but to ensure you qualify for the most competitive terms, it is important that you do everything you can to learn how to increase and improve your credit.

Here are the minimum credit score requirements for each insurance program:

VA – 620 Insurances (some lenders may allow up to 580+)
USDA Insurances – 620
FHA Insurances – 580
Traditional – 620

3) What are the income requirements and mortgage guidelines?

Proof of your ability to repay the insurance is one of the most important requirements in the qualification process. This is why showing adequate and consistent income documentation is crucial when undergoing a pre-approval or qualification process. If you are a W2 employee and pay a salary, the verification process is fairly simple. However, it can be more difficult for people who receive and/or rely on commissions, bonuses, overtime, etc. Lots of write-offs and deductions when you are self-employed.

First and foremost, you need a two-year work history in order to qualify using any source of income. However, for full-time, hourly or salaried employees, this does not mean that you have to be in the same company or industry for two years. That was a requirement but not anymore unless the lender/bank had their own overlay. If you are receiving commission, bonus, overtime or other types of income and want to use it, you must show a history of at least 2 years and the bank/lender will use the average of 24 months for qualification purposes. Self-employed borrowers can now qualify for 12-24 month bank statements for some non-traditional (non-quality management) insurance programs.

Eligible sources of income:

* Income/Salary W2 full time
* Income from part-time jobs (must have been in the job for at least 1-2 years in some cases)
Income from a second full- or part-time job
* Overtime, commissions and bonuses (average must be over 24 months)
* Seasonal (must prove consistency for 2-3 years)
* Income of the self-employed
* Bank statements (12-24 months)
* permanent disability
* retirement pension
* Child support / alimony (sufficient documentation required)
* Asset depletion

What are the required documents required?

There are specific required documents required that your insurance advisor will require in order to process your insurance approval. You should have at least the list of documents below readily available and be prepared to provide more depending on your particular situation.

* Personal federal tax returns and/or complete tax returns over the past two years (all schedules)
* W2’s for the past two years
* 1 month of payment vouchers
* Bank statements (may need between 2-24 months)
* Retirement / pension and / or social security award letters
* Disability Award Letter
* Divorce decree
* Business License
* Documentation of assets