Before you score your dream home, you usually need to secure a loan. What’s a good way to do that? For starters, you can review these five items lenders look for when reviewing your mortgage application now to see how you stack up.
Income and Expenses
Obviously, lenders will look at your income—and having steady income is a good thing. In a nutshell, good income equals good chances of making your payments consistently.
However, lenders will look on the other end of the spectrum too. They will review your expenses—fixed and flexible—to help determine your debt-to-income ratio.
Down payments vary and depend on buyers’ personal situations. With that said, typically the larger the down payment, the better.
For instance, lenders are more likely to give lower interest rates with lower loan amounts. In general, a solid number to aim for when it comes to down payments is 20 percent.
This is one of the items lenders look for when reviewing your mortgage application that is in-depth. First of all, it goes well beyond your credit score. Lenders will want to see a full credit report.
Below is a quick look at other factors lenders might check:
- Payment history: It pays to make payments on time. Having a good payment track record when it comes to credit cards and past loans reflects well on potential borrowers.
- Negative marks: This includes missed payments, collections, delinquent accounts or bankruptcy.
- Recent credit applications: Some lenders may see too many recent applications for lines of credit as a sign of financial woes.
- Being an authorized user: Be careful who you share credit card accounts with. If you are an authorized user on someone else’s card, how they handle it reflects on your report as well.
These are but a few prime examples of what lenders will discover in your credit report. The good news is you can also access your credit report for free at least once a year at AnnualCreditReport.com.
Basically, proof of stable employment for multiple years works in your favor. It demonstrates a pattern of responsible behavior.
Perhaps liquid assets can be thought of as security blankets for lenders. Knowing what assets borrowers could turn to cash quickly in a pinch is comforting when it comes to their return.
Remember, this list of items lenders look for when reviewing your mortgage application is just a start. Consider being proactive and accessing your credit report. Then make any adjustments you can to improve your overall report.
In the meantime, you can always talk to your Realtor more about what lenders may consider as well as what you, as a borrower, should look for in a lender. Check out our other blogs for more real estate news and local market trends!