If this is your first time getting a mortgage for your home, you might want to cover all your bases. You want to make sure your mortgage is approved quickly, and without any hurdles. You don’t want to be stuck in a circle of pending or rejected application. It’s not only frustrating but also time-consuming.
Any mortgage lender you approach would surely want to make sure that his loan will be paid back in due time. Mortgage lenders want to minimize their risks. To do so, they will look for these 5 things in your mortgage application:
Your Credit History
Your credit history is scored on a credit scoring system by three major credit scoring agencies. Also known as the FICO score, your score is calculated between 300- 850. A higher credit score means you are more likely to pay your loan on time.
Since your mortgage lender wishes to avert his risk, he will check your FICO Score. A FICO score above 690 is generally good. A score below 300 is flagged as red. Mortgage lenders generally avoid people with low credit scores.
Before meeting with your mortgage lender, you should check your credit score. If you don’t know your FICO score, you can easily request a free copy online through annualcreditreport.com.
A good credit score will also help you set favorable terms of your mortgage loan. With a high credit score, you can enjoy:
- A higher loan amount
- A lower monthly premium
- A loan mortgage interest
If your credit history is low, you should start paying your loans and bills on time. And stop shopping for a new credit card in the near future. Even if you don’t plan on buying a home, you should always keep a check on your credit score. Your credit score basically determines your financial position.
Your Debt-To-Income Ratio
Your debt-to-income ratio compares your debt with your current income. Debt includes your student loans, credit card debts and any other previous unpaid debts you might have taken out previously. Your mortgage lender wants to make sure that your current debts will make it difficult for you to pay off your monthly payments on time. He probably won’t approve your loan if your debt to income ratio exceeds 43%.
If your debt to income ratio or DTI is higher than this, you should withhold your mortgage application. In the next months, start by paying the bigger debts first. Hold off buying any new credit cards or other debts. This will help bring down your DTI and increase your chances of getting a mortgage loan easily.
Your Employment History
Your mortgage lender will also probably check your employment history for the last two years. He will ensure that you have a steady source of income. A steady employment is also something that will reflect well with your lender. He might also be making a call to your current employment place to inquire about your salary. He may also ask some of these questions:
- When did you start working for the company?
- How long have you been working with them?
- What is your current role in the company?
If you have switched jobs recently, he might also contact your previous employers. You should get in touch with your previous employer beforehand and let him know about your mortgage lender. You can request your employer to put in a good word for you.
Buying a home is a big investment. So its quite possible buying a home won’t likely be your first investment. You would probably already own a car, some holdings or a few valuables. Assets are all those valuable things that can bring you money if you plan to sell them later. They show your mortgage lender that you are financially in a good position.
The Size of Your Down Payment
Before you buy your home, you must have been putting aside some money to offer as down payment for the home. Your mortgage lender will be putting in the rest of the money. This means the more money you put down as your home’s down payment, the less you will have to borrow from the lender. Your mortgage lender expects you to put at least 20% of the home’s value as down payment. A lower down payment than 20% marks your loan as risky for him. It will decrease your mortgage lender’s willingness to offer you the loan. Or he might increase the interest percentage to make up for his risk.
My last advice is to always be honest with your mortgage lender. He might find out your situation later on and then forfeit your mortgage application. You might end up with no loan at all.
Mortgage Lenders are now also available online. It makes the entire process quicker and smoother. Check out Lenda Mortgage Review before you approach any other mortgage lenders.