If you’ve decided to buy a home, there’s a good chance you’ll need a loan to pay for it. But, getting approved for a mortgage can be tough, especially when you don’t know what lenders consider when approving or turning down home loan applications.
Increase your chances of getting a mortgage approval the first time around by making yourself a good candidate for it. Not sure how to do that? Keep reading as we discuss the key factors lenders consider while evaluating mortgage applications to know how to improve your chances of approval.
Top 3 Factors Mortgage Lenders Consider when Evaluating Your Candidacy
The top factors mortgage lenders look at include:
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Your Income and Employment History
First things first – a lender wants to have the assurance that you will repay the loan, and one of the most fundamental ways to do that is to see if you have a consistent and reliable income stream. For that, the lender looks at both your current income and your employment history. Most often, they look at your work history and income over the last two years.
Ideally, you should have a consistent income during that time. But, if you have had a gap in your employment during the past two years, make sure you have a valid explanation for it. If you can provide any documentation to back your justification, it’s even better.
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Your Debt-to-Income Ratio
The next step for mortgage lenders to ensure that you can keep up with your repayments is to see that you have enough money left every month. For that, they look at your debt-to-income ratio. This includes taking into account all your existing debts and determining how much of your monthly income goes into these debt repayments. Most lenders want applicants to have the maximum debt-to-income ratio of 43%. There are some, however, who may accept higher debt-to-income ratios. But, you should try to keep it below 43% to have higher chances of approval.
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Your Credit Score and Payment History
These two elements give lenders an idea about your money management skills. Before you start hunting for a lender, it’s always a good idea to review your credit report, and if it’s not great, spend some time improving it. Remember, your credit score can affect your chances of approval and also the terms and conditions of the home loan and the interest rate.
For FHA loans, the credit score requirement is generally a minimum of 580. While you may find some types of loans that accept lower credit scores, the better your score is, the better rate and terms of the loan you can expect to get.
The Final Word
Mortgage lenders want to have the assurance that you will repay the loan. The better you can convince them, through your financial status and history, the more attractive candidate you will be. So, do your homework and improve your prospects before setting up an appointment with a lender. In case you need help with getting pre-approved or securing a home loan in Indiana, know that we can help. Get in touch with us to learn more!
Image Credits
Photo by RODNAE Productions from Pexels
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