Two Key Factors in Qualifying for a Home Loan
When a lender makes a decision about a mortgage application, they consider two basic factors: 1) your ability and 2) your willingness to repay the loan.
Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years. Your proposed monthly payment will be compared to your monthly income and debt.
Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home.
It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, extensive educational background or overall financial health.
For applicants who need to make a lower down payment, mortgage insurance is protection for the lender in case you stop making payments. This allows low and moderate income families to become homeowners with low down payment programsWhen trying to qualify for a home purchase, make sure that you get pre-approved before you begin house hunting. This will let you know how much of a mortgage you can be qualified for and if there are any problems with credit or anything, should provide you some time to take care of the issues upfront (not after you have already signed a purchase agreement and have a time deadline). Qualifying for a home loan is a fairly simple process with a knowledgeable and experienced mortgage broker.
Most lenders will allow for a debt to income ratio of between 40% to 55%.
When getting qualified for a home mortgage loan the property (collateral) will also need to be deemed acceptable to the lender. This is usually done by means of having your home appraised by a licensed appraiser and the underwriter reviewing the appraisal.
Automated underwriting is used on most conforming loans and this may allow for a certain amount of lates on your credit, a higher debt ratio or a lower credit score, so there may not be any set guidelines for your credit or debt ratio.
Your gross monthly income is used to qualify you for a mortgage loan. Your gross income is how much you make before taxes.
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