Things Banks Check Before Making A Mortgage Loan
Before you buy your new home, one of the biggest steps you have to take it applying and being approved for a mortgage. So, unless you happen to have enough cash lying around to buy a house upfront, you should understand what mortgage lenders look for in borrowers.
Understanding what factors lenders take into consideration can not only help you get approved for a mortgage, but it will help you get the best terms possible on your home loan.
So, before applying for a mortgage, take a look at these five things banks check before they will approve you for a mortgage.
One of the most important factors banks take into consideration is your credit score. Your credit score is a metric banks use to determine whether or not you are a responsible borrower.
The higher your credit score is, the better. Low credit scores often indicate that you are a risky borrower. So, even if you are able to get approved, you may end up with unfavorable loan terms.
Before you apply for a mortgage, you should make an effort to improve your credit score. This can be done simply by making on-time payments towards your debts over time. It may take a while, but having a good credit score is necessary if you want to take out a mortgage at a reasonable interest rate.
Every lender has their own requirements, but you should aim to have a credit score of at least 650.
Your income tells lenders whether or not you will be able to make your mortgage payments on time every month. Banks will want to review your bank statements, pay stubs, and other information to make sure you earn enough money to afford your mortgage.
As a general rule of thumb, your mortgage payments, property taxes, and insurance should not exceed about 30% of your monthly income. Keep this in mind when applying for your mortgage.
Lenders will also need to know about any outstanding debts that you are currently making payments on. Having other loans isn’t necessarily a bad thing, but lenders will want to make sure they won’t impact your ability to make mortgage payments.
If it turns out you don’t have much money left after making payments towards your other debts, it may be difficult to get approved for a mortgage.
The larger the down payment you are able to make, the easier it’ll be to get approved for a mortgage. A larger down payment means that you will be borrowing less overall. It also demonstrates good financial health, making it easier for lenders to trust you.
Generally, 20% is considered the standard down payment for serious applicants. However, if you aren’t able to put down this much, you might still be approved, but it will be a little bit more difficult to find a suitable lender.
Last but not least, lenders will need to review your employment history to make sure you are a reliable borrower. Your income doesn’t tell the whole story, banks also need to ensure that your income is steady.
A rocky employment history can indicate that you may not be able to continue making mortgage payments in the future. Banks will likely want to contact your employer to make sure you are employed and to verify your current salary.
Finding the right mortgage isn’t always easy, especially when you don’t know what banks look for in a borrower. By understanding what factors your lender will take into consideration, you can find the mortgage you need to buy your new home.