Owning a house is a dream yet to come true for many of us. You’ve worked and saved money for it, after all. A lot of people opt to get a mortgage when looking for the best housing loan to finance their dream home. But how can you be sure that you obtain one? What factors do mortgage lenders consider before granting you a loan? Knowing this can put you one step closer to owning the house of your dreams.
What Criteria Do Mortgage Lenders Use?
The factors considered by mortgage lenders impact the approval process as well as the interest rates and payback schedule. Before approving a mortgage, the best home loan lenders consider the following factors.
1) Bank statements:
One of the first things lenders will look at is our bank statements. They offer an all-in-one history of your debts, payments, and costs. Lenders examine recent financial records to confirm that you are employed steadily, have adequate funds for the down payment, and have no recent obligations. Many people also examine your bank statements for any odd or illegal activities. Since bank statements contain a lot of information that lenders will review, let’s start there. Knowing how far back mortgage lenders examine bank statements is also crucial. The typical period is two months.
- Amount of money saved: You need to have at least 20% of the value of your house available for a down payment. Your chances are better of getting an instant home loan if you have more money in savings. This money should preferably be in your bank for longer than 60 days as well.
- Cash flow: The second thing on your bank statement that lenders look at is cash flow. This is to make sure you have a reliable source of income and can afford the mortgage. It contains all of your earnings in addition to your regular monthly costs.
- Source of down payment: The down payment is the next item on the list of “what do underwriters check for in bank statements?” You should have obtained the funds for your down payment legitimately. The lenders will double-check with the individual who gave you the money if you claimed it as a gift to be sure it wasn’t a loan. Then only you will get a home purchase loan.
- Reserves: To acquire a better understanding of your finances, lenders may check your bank reserves. Similar to savings, reserves show favorably on the bank statements and can increase the likelihood that your mortgage application will be accepted.
Non-sufficient funds (NSFs) on your bank statements, poor marks, and bankruptcy are all huge red flags for lenders.
2) Credit Rating:
As credit scores are crucial, the lender would also value a strong credit history that includes on-time payments. A credit score of above 750 will help you get the best home loan offers. You should consider your credit if you’re determined to learn how to get a mortgage. Your credit score isn’t the only thing included in this. Here are some issues to be on the lookout for:
- CIBIL credit ranking: The 300 to 850 mark represents the CIBIL credit score range. It is crucial in setting interest rates in addition to aiding in mortgage approval. Your chances of being authorized and receiving low-interest rates on your instant home loan are improved by having a higher credit score. While numerous mortgage lenders will work with borrowers with negative credit, the standard minimum criteria are 650.
- On-time payments: Making payments on time shows that you have good money management skills and can handle your bills. Missed payments, on the other hand, will be viewed as proof that you are unable to manage your finances if they appear on your credit record. When determining whether you have a past-due account, lenders look at the payment history. Making your payments on time will improve your credit score. This is a factor that you cannot afford to neglect during your home loan online apply.
3) Debt and Income:
Your debt-to-income ratio is the next point to consider (DTI). Your DTI is likely at the top of the list when you apply for a mortgage if you’re wondering what banks consider. It establishes the percentage of your monthly salary that is used to pay off debts. The higher your chances of being accepted, the lower the score. Lenders typically require a DTI of around 43%.
You may quickly get your DTI by simply adding up all of your monthly obligations and dividing the total by your gross monthly income, which is your income before taxes. Your total income should include all income sources, including investments and other assets. The DTI ratio aids lenders in determining whether you, as a borrower, would be capable of making future loan payments.
Your employment history is a further crucial factor. It can reveal many things about you. What do lenders looking at your employment history look for? Excellent employment history is one with few gaps in employment or excessive job changes. It demonstrates to the lending organizations your commitment to purchasing a home. To get the best home loan offers, ensure that you are loyal and consistent towards your job.
5) Down payment:
Last but not least, lenders want to know how very much you’re prepared to put down. As a down payment, you ought to set away at least 20% of the price of your house. If not, more mortgage insurance would need to be paid (MI). Downpayment is a mandatory criterion for a home purchase loan.
Why can a mortgage be turned down?
You run the risk of having your mortgage application rejected if you don’t verify the conditions. To be authorized for the home purchase loan, you should ideally have a favorable DTI, no debts, and a strong credit score.
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To improve their chances of being approved for a mortgage, prospective homeowners must be well-versed with the requirements. Lenders take into account several factors, including complete financial records, credit, debts, income, and employment records. All the factors, as mentioned earlier, will guarantee that you are eligible for the best housing loan and can make your mortgage payments on schedule.