What do lenders look for in a Mortgage Application? Lenders are looking to determine your ability to repay the loan obligation. They do this by looking at various risk factors such as your job history, income, assets, and credit history. All these factors help determine your creditworthiness.Mortgage banks also look for the presence of reserve funds from the borrower. Many banks examine the homebuyer's personal bank statements to ensure that the borrower has sufficient funds for down payment, to pay for closing costs, and enough left to cover at least three to six months worth of mortgage payments.
The "declarations" section of the loan application is used to determine whether or not you are a first time home buyer. First time home buyer loans are often carefully reviewed to ensure that the applicant is not only qualified to borrower, but prepared to own.
To summarize the main methods used in underwriting a loan, the 3 C's are used: Credit, Capacity (to repay), and Collateral.
A lot of the paperwork required for a home loan is just information that is needed to prove what you provided on your application. The lender just wants to make sure and validate that everything you said about your income, credit, and work/living situation are accurate. This leads to the lender asking for many documents to complete the file.
Another basic factor in the loan application is the loan to value ratio or LTV. This is the comparison of the amount you are borrowing and the value of the home or the sales price. The value of the home is determined by an appraisal. For Purchases the LTV will be based on the lower of the two, appraised value of sales price.
One of the main factors that a lender is going to look for in a mortgage application is your debt to income ratio. This is the ratio of how much money you have coming in compared to how much money you have going out each month. Each lender has certain guidelines they need to abide by in regards to debt to income ratio. Your debt to income ratio determines how much of a home loan you can qualify for and how much of a monthly mortgage payment you can qualify for. Therefore, determining your debt to income ratio is of the utmost importance to a lender.
Another very important factor lenders look at is your credit score. This may be the single biggest factor in determining what programs and rates you qualify for. Lenders will generally look at the middle of your 3 credit score, although their are niche programs that will use your highest score, or the average of your 3 scores.
How long have you been employed and what is your position? Lenders want to see solid, stable income so they often require two years on the job. If you change jobs frequently or are employed on a per job basis be prepared to provide extra income documentation. You should also determine the name, address, and telephone number for all of your employers for the last 24 months along with the exact dates you began and finished the job.
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