Mortgage Qualifications

Lenders generally base mortgage decisions on these five factors:

1. Income Stability

Any income that can be verified and has a 2-year history, such as investment interest, commissions, royalties, social security, disability, and alimony payments, in addition to your salary, counts to your advantage.

2. Debt-To-Income Ratio

Lenders prefer that the proportion of your combined debt and housing expense be no more than 50% of your monthly pre-tax income. Housing expenses usually consist of principal, interest, taxes, and insurance (PITI) but can also include maintenance.

Other debt includes credit card balances, installment loans, and anything else you might owe. Our monthly payment calculator can help you determine your monthly housing expense. If your circumstance is different from the standard ratios outlined above, don't despair! Mortgage lenders have programs that accommodate many financial situations. Contact us today for our list of trusted mortgage lenders.

3. Loan to Value (LTV)

Loan to value (LTV) is the ratio of your loan amount to the value of your property. This ratio tells a lender how much equity you will have in your home. When you have high equity and a low LTV ratio, you're seen as having a more significant stake in the investment. This financial situation is seen as less risky for the lender. An LTV of 80%, for example, means that you are putting 20% down and borrowing 80% of the property's value.

Borrowers with less than 20% equity are generally required to buy Private Mortgage Insurance (PMI), protecting the lender from loan default. Loan-to-value guidelines are determined by the borrower's circumstances and the type of loan. Borrowers who qualify may be eligible for a mortgage loan with a zero-dollar down payment.

4. Property Appraisal

A property appraisal is a professional assessment of your property by a licensed appraiser to ensure that its market value is sufficient for the loan amount. A lender needs to know that the borrower's collateral (property and down payment) will cover the loan amount in case of default.

5. Credit History

Naturally, a lender wants to know your payment habits before giving you a large sum of money. It's a good idea to call and speak to a loan officer who can coach you on what to do first. If you have debt, they can help you decide what to pay off first to improve any issues with your credit score. Contact us today for our list of trusted mortgage lenders.