Getting Approved for a Mortgage

The following are the primary factors taken into consideration when determining whether to approve or deny a potential homebuyer’s application for a mortgage:

* Property Value: An appraisal conducted by a licensed professional and based upon the both the current condition of the home and the relative selling price of comparable homes in the area tells the lender the value of the property you want to purchase. The lender uses this information to determine whether the home is actually worth the price you’ve offered to pay for it.

* Credit: This includes your credit history and your current overall debt situation. Lenders like to see that those applying to borrow money from them already have a consistent record of paying bills and other debts on time. Late payments and defaults on previous loans (ie. credit cards, car loans, student loans, alimony, child support, etc.) present a potential borrower as less-than-creditworthy and make lenders reluctant to give them new loans.

If your credit history shows difficulties as recently as the past two years you can still write an explanation of the circumstances that caused the difficulties and lenders will take it into account when making their decision.

* Income and Employment Factors: This includes both your current income and your employment history. Typically, lenders like to see your current monthly expenses totaling no more than a third of your gross monthly income. Gross income, or all of the money that you’ve earned before taxes are taken out, may include alimony and child support received, and an average of your monthly commissions and overtime pay should you desire to have those factors considered.

Lenders also like to see applicants having a consistent work history in the same or similar occupation with a trend of steadily growing income over the several years leading up to the submission of the loan application. They will almost certainly verify your employment (except in the cases of certain types loans - ie. No-Income-Verification, Stated Income, and No-Doc loans). If you are self-employed, have held your current job for under two years, get paid on a commission basis, there’s a good chance you’ll be asked to provide further information about your prior work history.

* Mortgage Terms: A definitive factor in determining whether or not to approve your application for a mortgage is the amount of your proposed monthly payment factored as a percentage of your current income. The general rule is that your monthly mortgage payment (that’s Principal, Interest, Taxes, Insurance, and - when relevant - Homeowner’s Association dues) is less than one-third of your gross monthly income.