One of the first steps in your home buying process is to choose a mortgage lender and get pre-approved for a loan. There is a lot that goes into determining if you qualify for a home loan, but most lenders will look at these 5 categories.
- Character– your credit score will tell lenders about your character and credit history. Do you pay bills on time? Are you accounts in good standing? If you have a low credit score, you may have to work on improving it before applying for a loan.
- Capacity– this measures your ability to pay back the loan. Your income and job stability (they will verify your employment) will come into play, as well as your debt-to income (DTI) ratio. This is calculated by dividing total recurring monthly debt by your gross monthly income. A ratio over 36% could mean a higher interest rate, or even denial for a loan. If your DTI is over 36%, you can lower it by paying down current debt, not taking on more debt, and avoid big purchases (like a car) before you buy a home.
- Capital– this refers to the money you have, or will have, to purchase your new home. Buyers with a down payment will have a better chance of getting approved for a loan. However, there are various loan programs that do not require a down payment.
- Collateral- for home loans, collateral is the home itself. If you default on the mortgage, the bank (or lending company) will seize the home. This is why a home appraisal is done when getting a home loan.
- Conditions- is it a buyer’s or seller’s market in your area? What is the current interest rate? These are conditions that can impact home prices as well as your ability to get a home loan.
-Christie Snapp, 317-902-298, email@example.com