What Do Mortgage Lenders Look For Before Approving a Home Loan

Prequalification for a mortgage can be a big deal. It can give you an edge when seeking out real estate agents and house sellers. Getting prequalified is a good indicator that you’re serious about purchasing a house. While this is nonbinding, it will give you an idea of what you can afford.

To determine what lenders will look for, there are basic things to consider. First, you have to make sure that you are able to pay off the loan. Here are six items  that most mortgage lenders look for.

Your Credit

Your credit score and credit reports will be reviewed by lenders. This is one of the things that will determine what type of home loan you’d get. It also impacts – how much interest rate you will receive. The mortgage lenders will use these -to assess the risk of lending you money to finance your home. Lenders will also look and review your credit and payment history.

Your Remaining Debts

Getting qualified for a mortgage loan doesn’t mean that you need to have a zero balance on your credit cards. It – means that owing less to the creditors will be better. The lenders will use your DTI (debt-to-income) ratio to make sure you don’t have more debt than you can handle. DTI ratio is a financial measure that will compare the amount of money you earn versus the amount of money you owe. DTI limits will vary depending on your kind of loan program, yet it is usually 43 to 50 percent.

Avoid taking on new debts or making huge purchases until you have closed a deal. Mortgage lenders will review and check your credit report again before closing your loan.

Your Monthly Income

For a person to qualify for any loans, especially mortgage loans, lenders will need a proof of income. Lenders will want to see if you have a stable income based on your tax information for two years. If you are self-employed, the lenders will take a look at your gross income in your tax return.

Your Employment

Your employment history will be reviewed. Having no stable work for the past two years may impact your loan eligibility. Some lenders will call your present employer to make sure you are still currently employed with them. They will also verify your salary. If you have changed jobs in the last one to two years, the lenders may contact those employers as well.

Your Existing Assets

The lenders will ask for your bank account statements. They will need investment account statements as well. This is to make sure that you have the money that you claim. The mortgage lenders will verify that the money has been in your account for several months. They will also want to verify if you have any cash reserves. If you have recent large deposits, the lenders will also want to know about them.  

The Downpayment

There are home loans and mortgage programs that don’t need you to make any down payment. You may have more options if a down payment is available. Consider this an investment in your home’s equity. There are many lenders that give home loans with a down payment that is lower. This will allow you to finance up to 90 percent of the buying price. In most cases, the lenders will require you to pay the mortgage insurance if you pay less than 20 percent. This insurance will protect the mortgage lender against losses in the event that you don’t pay the mortgage.

Getting money from family and friends to pay for the down payment is a possibility. You will need to produce a gift letter to the lenders to prove the money isn’t some kind of loan. There are also other home loan programs that have rules when it comes to gift funds. Ask your lenders for details about this when you are applying for a mortgage.

If you are looking to applying for a mortgage loan, check out Calcite Credit Union today!

 

By |2018-12-14T12:01:20+00:00December 5th, 2018|Loans, Mortgage|1 Comment

One Comment

  1. Lloyd Bronson October 21, 2019 at 2:46 pm - Reply

    I found it incredibly helpful that you mentioned how a mortgage lender will likely look to your monthly income to determine if the rate of funding one receives will be sustainable for a home. My spouse and I are looking to purchase a home, as the two of us are interested in raising a family. We’ll be sure to look into finding a reliable loan service to assist us!

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