March 6th, 2018 10:19 AM by Michele Morse Reen
Buying a home involves more than just looking at houses that fit your wish list. There’s the loan process to think about as well. As part of that process, you know that there will be a loan application to complete, but do you know what information lenders are looking for on that application? You might be surprised.
Just know that we’re here to help you navigate the process and make it as simple as possible. Let’s take a look at what lenders generally will be looking for…
Credit Score and History - Lenders will be looking at your credit score and credit history. Your credit score is one of the main factors that helps determine what type of home loan and rate you will qualify for. You can check on your credit ahead of time and work on boosting your score.
Debt Ratio - Lenders consider your debt-to-income (DTI) ratio, which is your total monthly debt divided by your gross monthly income. Generally, lenders require a DTI of 43% or less. If your ratio is higher than that, don’t panic - there may still be loan programs available to you.
Income Type and Amount - Lenders will want to ensure that you have sufficient monthly income to cover your mortgage payments. This income includes salary and bonuses as well as income from dividends and interest. Depending on how much your income fluctuates may make a difference in how much documentation you need to provide. Please note: Try not to make any sudden employment changes right before applying for a home loan.
Employment History - Lenders will usually verify at least two years of your employment. They are looking at length of time in your profession, as well as whether your income is stable. If you are self-employed or own your own business, you should be ready to provide your tax returns and additional documentation. APM has loan programs to make documentation simpler for self-employed borrowers.
Assets and Reserves - Lenders will ask for bank and/or investment account statements for the past two months or more to confirm how much you have available in assets and cash reserves. They will be checking to make sure that funds have been there for several months and will ask for sources of any recent large deposits. Save up as much as you can to show that you can cover a few months of mortgage payments.
Down Payment Amount - Lenders will consider the amount of down payment you have, which will determine which loan programs are a fit as well as whether or not you will be paying private mortgage insurance (PMI). If you pay a 20% or more down payment, you will not require PMI and may qualify for more favorable loan rates and programs. If you have less than a 20% down payment, there are still plenty of loan programs available, mostly ranging from 3%-20% down payments as well as some zero down loan programs.
By being aware of what lenders will be looking for on loan applications, you will be better prepared and avoid feeling overwhelmed when you begin the process.
Be sure to check out our additional resources to take the mystery out of the loan process and help you to know what to have ready for home loan applications:
Feeling ready to take on the home loan application process and begin your homeownership journey? We’re here to simplify the steps for you as well as help you through the process. Find your nearest friendly loan advisor and let’s do this together!