What Factors Determine If You Qualify For A Mortgage Loan?
After years of renting an apartment, you have decided to take a leap, apply for a mortgage loan to own your home. Unfortunately, not everyone who applies for mortgage loans qualifies. So, what factors determine if you qualify?
Any mortgage lender starts by considering your household income. While there is no set minimum amount of income you should have, your lender considers your income to make sure that you earn enough to offset your premiums alongside other bills.
Lenders focus not only on your salary, but also on your total income, which includes income from part-time jobs and side hustles, commissions, and allowances. If you can show you have a consistent income, you can easily qualify for a mortgage.
A Good Credit Score
A credit score is a computed numerical rating that shows your credit history. It shows your reliability in paying off bills and debts. A high score shows good financial management and mindful spending habits.
In contrast, a low credit score is an indication you fall behind on debts or payments and have poor financial management skills. A lender sees a bad credit score and assumes that you're accustomed to taking more debt than income. Therefore, you can effortlessly qualify for a mortgage with a good credit score, while your application can get turned down for a bad score.
As you apply for mortgage loans, you might need to show assets you own by attaching your investment account statements alongside bank statements. These statements serve as proof you can meet the mortgage down payment. They also show you have cash reserves should you run into an unforeseen financial emergency.
So if you happen to lose your income, you'll have alternative ways to continue paying the mortgage premiums as agreed. You can show proof of assets through certificates of deposits or IRA account.
A Good Choice on the Type of Home or Property You Intend To Buy
What type of home do you intend to buy? Most people opt for a primary residence as their first home. Most lenders sign off on mortgage loans for individuals who intend to buy primary residences. The low risk is the main reason why some government-supported loans specifically approve primary residence purchases.
When looking to buy an investment property or a secondary residence, these types of property pose a higher risk to the lender. Thus, they selectively approve mortgage loans intended for this purpose, and you'll need higher credit scores to qualify.
There are many misconceptions about what it takes to qualify for mortgage loans. However, it narrows down to the four factors discussed above. For more information, contact a lending service, such as Secure One Capital.