If you’re planning to purchase a home, you’ll likely take out a mortgage loan to finance it. Before you go to a lender, it’s important to know what information they will require to assess your financial situation and approve your application. Institutions do this to gauge the risk of an individual being unable to pay the loan.
To help you on your homebuying journey, here are five factors you should look into:
If you’re applying for a mortgage, your credit score and report will be evaluated by the lender. These usually provide insight into how you manage the money you borrow. For an easier underwriting process, make sure your debts are paid to ensure you have a good credit history.
Most lenders either use the FICO Score or the VantageScore to determine if they will approve your loan. Aim for a credit score in the 700s or 800s if you want to secure a mortgage.
Income and Employment Information
Lenders want to make sure you have sufficient and consistent income to pay back your loan throughout its period. You’ll have to provide your employment information and documents showing your monthly salary, overtime, bonuses, and more. If you’re working part-time or are self-employed, the process of getting a loan can be more difficult than for those with a full-time job.
Your debt-to-income (DTI) ratio compares your monthly debt obligations in proportion to how much you earn. A low debt-to-income ratio means that only a small percentage of your income goes to your other debt payments.
Mortgage lenders are more likely to accept your loan application if your DTI ratio doesn’t exceed 43%. However, you may still have a chance with a higher DTI ratio if you have a reasonable income and a good credit score and history. If your chosen lender still turns you down, work on lowering the percentage by paying off your existing debt.
Value of Collateral
If you’re looking for mortgage loan options with lower interest rates, putting up collateral will do the trick. Most financial institutions approve mortgages with this guarantee because they will have a way to recover the money they lent you if you don’t pay.
Your collateral will also determine how much you can borrow. You cannot request an amount higher than the current value of your collateral because the lender needs equal compensation for their risk.
Mortgage lenders would like to see if you have some savings or other assets that you can turn into cash when applying for a mortgage. These will assure them that you are capable of keeping up with your payments even if you face temporary financial setbacks.
Turn to Your Best Choice for a Mortgage Loan
If you’re looking for a reliable institution to get a mortgage loan, turn to us at Firefighters Credit Union in La Crosse, WI. Contact us for more expert financial advice.