What Are Lenders Looking For?
What Are Lenders Looking For?
Buying a home can be an overwhelming process if you don't know what to expect. One of the first steps of the mortgage loan process is the application, but do you know what information Lenders are looking for on that application?
Let’s take a look at what Lenders will usually be looking for:
Credit Score and History - Your credit score is one of the main factors that helps determine what type of home loan and rate you will qualify for. If you’re unsure of where you stand, we strongly suggest you get a copy of your credit report ahead of time to help determine if you need to take any actions to improve your credit score.
Debt Ratio - Your debt-to-income (DTI) ratio is another important piece to the puzzle. This is your total monthly debt divided by your gross monthly income. Generally, Lenders require a DTI of 43% or less. However, don’t panic if your ratio is higher, there may still be loan programs that are a good fit for you.
Income Type and Amount – In order to purchase a home, Lenders will want to make sure that your monthly income is sufficient enough to cover your mortgage payments. In addition to your salary, bonuses and income from dividends and interest are also included in your total income. If your income changes, that could make a difference in the documentation you will have to provide. We highly advise that you try not to make any sudden employment changes right before applying for a home loan.
Employment History – It is common for Lenders to verify at least two years of your employment. They are looking at length of time in your profession, as well as income stability. If you are self-employed or own your own business, you should be ready to provide additional documentation that may be required. Service First has loan programs specifically targeted for self-employed borrowers.
Assets and Reserves – You will need to show how much you have available in assets and cash reserves. Therefore, Lenders will ask for bank and/or investment account statements for the past two months or more to confirm. In addition to checking whether funds have been there for several months and they will also look at recent large deposits. Be prepared to give them the sources for these large deposits. It’s a good idea to save as much as you can in order to show you can cover a few months of mortgage payments.
Down Payment Amount – The amount of down payment you will pay helps Lenders determine which loan programs are a good fit. It will also dictate whether or not you will be paying private mortgage insurance (PMI). If you put 20% or more down, you will not require PMI and could qualify for better loan rates and programs. If you pay 3% - 20% down payment, there are still plenty of loan program options, as well as some zero down loan programs.
Now that you have a better idea of what lenders will be looking for, you will be better prepared and can avoid feeling overwhelmed. The highly trained Loan Officers at Service First Mortgage will be able to expertly guide you through this process and provide a stress-free experience.