Many 1st time buyers are intimidated by the mortgage application process, but it’s actually pretty simple. Even if you don’t quite qualify today, I’d encourage you to reach out so we can get you on the right track toward home ownership. There are 4 primary factors that lenders consider when looking at your mortgage application.
The 4 primary factors to qualify for a mortgage loan are:
Income includes your regular salary and any other reliable and regular income such as Side Hustle Income, Overtime or Commissions, Military benefits, and / or Social security, alimony or child support payments.
Most lenders usually won’t consider a stream of income unless you can prove it’s been consistent for at least 1 year, but there A LOT of exceptions so this should not stop you from moving forward.
Next, lenders are going to look for other assets you own. Assets are things that you own that have value, such as Checking and savings accounts, Certificates of deposit (CDs), Stocks, bonds and mutual funds, IRAs, 401(k)s or any other retirement account you have. And this makes sense, right? The lender wants to know that if your income is suddenly lost, what other options do you have to keep making your mortgage payments?
The third item is your credit score. If you don’t know what a credit score is I have another video
discussing this at length, essentially your credit score is a three-digit rating of how reliable you are as a borrower. In general, the higher your credit score, the more access to loan types & lower interest rates.
Most lenders will require a credit score of at least 620 points. If you score is lower than this, you’ll either need to work to increase your score or your lender will help you qualify for a government backed mortgage such as an FHA loan.
Debt to Income
Last but not least is your Debt to Income Ratio, commonly called DTI.
Your DTI ratio is a percentage that tells lenders how much of your gross monthly income goes to required bills every month.
To calculate your DTI ratio. Begin by adding up all of your fixed payments you make each month including rent, credit card minimums and student loan payments. Don’t include things that vary like utilities, entertainment expenses and health insurance premiums.
Now, divide your total monthly expenses by your total pre-tax household income. Include all regular and reliable income in your calculation from all sources. Multiply the number you get by 100 to get your DTI ratio.