Financing the purchase of a home can be a daunting experience, especially when it comes to dealing with lenders. It can sometimes feel like there are endless hoops to jump through and requirements to meet before you can even think about getting a loan. But don’t worry, we’ve got you covered. In this article, we’ll break down the six most important factors that lenders will look at when deciding whether or not to give you a home loan.
First and foremost, lenders will want to know about your income.
This includes your gross monthly income before taxes, as well as any rental income, commissions, bonuses, overtime, part-time or self-employment income that you’ve earned over the last two years. Lenders will want to see that your income is stable and sufficient to cover your mortgage payments.
Lenders will take a close look at your assets.
This includes any money you have in savings accounts, as well as other capital and investments you may have. Most lenders like to see that you have positive savings/investment habits, which typically translates to a responsible borrower. These funds will need to be verified as having been in your account for at least 60 days. If you’re receiving money from a relative to cover closing costs or a down payment, you’ll need to provide documentation.
Your credit history and FICO score will also be scrutinized by lenders.
If you have any derogatory credit marks, you’ll need to provide a good explanation for them, or they may be paid off through the title at the end of the transaction. Your FICO score is also important, as it will determine the interest rate you qualify for.
Your overall debts or income-to-debt ratio is another important factor that lenders will look at.
They’ll calculate your PITIA (principal, interest, taxes, insurance, association dues) and divide it by your gross monthly income to arrive at the top-end ratio. This ratio is typically between 38-43% for a jumbo loan and up to 49.99% for non-jumbo loans. Lenders will also look at the bottom-end ratio, which includes PITIA + all of your monthly obligations, such as credit cards, car loans, and student loans. A lender will want to see this ratio between 33-35%.
Lenders will also want to know about your employment history and stability.
They’ll want to see that you have a steady job and income, and they’ll need documentation for any gaps in employment or job changes. Changing jobs within the same industry is typically more acceptable than changing industries altogether.
Finally, lenders will take a close look at the property you’re applying for a mortgage on.
They’ll want to know the property type, appraised value, and loan amount you’re applying for. The title report and title insurance may also impact the terms of your loan.
If you’re reading through this and feeling overwhelmed or thinking that you may have some issues qualifying for a home loan based on the six requirements above…Don’t worry, you’re not alone!
There are lenders out there who can work with any unique circumstance or even limited documentation (whether you don’t have it or simply don’t want to spend hours digging it all up). In fact, I work with a variety of lenders ranging from conventional to alternative, and everything in between.
The entire process of getting a home mortgage loan can feel like a daunting task, but if you’re prepared ahead of time and know what lenders are looking for, you’ll be in a much better position to get approved.
By focusing on your income, assets, credit history, debts, employment history, and the property you’re applying for a loan on, you’ll be in great shape to securing the financing you need to buy your dream home.
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Remember to speak with your lender about any concerns or questions you may have during the home loan process.
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