A mortgage is a loan you can apply for when you want to buy a house. When applying, the lender will evaluate your application and finances to ensure that you meet the eligibility requirements. Therefore, it may help you to understand what lenders look for when they assess loan applications. While lenders look for many things, here are the top three things to know.
The term "creditworthiness" refers to how much a bank trusts you to repay the money if they give you a loan. People with excellent credit scores have a history of managing their finances well, and lenders tend to deem these individuals creditworthy. Lenders face few risks issuing loans to people with excellent scores, whereas they face more risks issuing loans to people with lower scores.
A lower score indicates that you might be a higher risk to the lender. Lower scores do not prove that a person is creditworthy, and as a result, people face more challenges getting approved for loans with low scores.
Your DTI Ratio
DTI stands for debt-to-income, and it refers to a ratio that lenders use when assessing loan applications. Lenders care about a person's DTI because it helps them determine if they can afford a mortgage loan based on their current financial situation. Lenders calculate this ratio by adding up the person's monthly income and monthly expenses. Next, they divide the income by the expenses to determine the ratio.
Lenders typically do not offer loans to people when their DTI ratios are too high. You can talk to your lender to find out how they calculate this and the answer they want to find. If you find that your DTI is too high, you can lower it by paying off debt or increasing your monthly income.
Your Job Security and Income
The other factor that plays a role in a lender's decision is the person's job security and income. Lenders want to see that a person has the same job for two years or more before approving a loan. If you have not reached the two-year mark at your job yet, you should wait to apply until you have. Your income amount also affects your ability to repay a loan, so lenders like to know this information when evaluating applications.
Do you have questions about getting a mortgage loan? If so, contact your local mortgage lenders to learn more.