Home > Guide

Four Key Factors that Affect Mortgage Approval

Buying a home is one of the biggest investments you will make in your lifetime. It is only natural that questions regarding financing can arise.  The biggest question is, “How much home can I afford?”

Well, the answer depends on your financial situation. The process of applying for and ultimately taking on a home loan can be stressful. Thankfully, experienced lenders like Brian McCauley and his team can help. It is important to be familiar with the key factors that determine whether your mortgage will be approved.

1. Credit Score

A credit score is the rating given to people based on their repayment history with things like lines of credit, auto loans, and credit cards.

When you have a  higher credit score, that means that creditors predict that you’re more likely to pay the loan back. That number is among the key factors which a loan officer in Dallas TX or anywhere else will look for in order to determine the strength of your application.

Your credit score not only determines if you’ll be approved, but it will  also determine your interest rate. For instance, most lenders have A as well as B classifications for their applicants within a specific credit score range.

Usually, a credit score of around 650 or more is the low range benchmark for many mortgage lenders. But this number can vary based on the mortgage lender you work with.

2. Debt-to-Income Ratio

Your DTI (debt-to-income) ratio refers to your debt amount relative to your income. Lenders will include your mortgage payments in the future. This is normally calculated by how much you will pay per month divided by the amount you make.

In order to qualify for a mortgage loan, your debt-to-income ratio needs to be capped at around 44% maximum. That means that your mortgage payment should be no more than 44% of your income. Although this is subject to adjustment depending on the lender you choose, the bank wants to be sure that you don’t live beyond your means, regardless of the mortgage amount you receive.

3. Down Payment

Many home mortgage loans need some money to serve as a down payment on your new home. The higher your down payment, the more likely you’ll be to get approved for the mortgage and qualify for lower interest rates.

Rule of thumb is that 20% of the buying price is the ideal down payment. If you don’t have 20%, there are specialized loan programs that can help. Although several programs provide zero-down mortgages, they tack on other conditions, like PMI or a higher percentage rate.

4. Paperwork

There are a lot of elements involved in the application for a mortgage and it’s not a quick process. Before you do the paperwork, be sure you have accurate records of your income and access to any bank statements. Within the application, you’ll need to use your full legal name.

Having all the paperwork filled out properly and having it ready to send is one way to speed things up. It also minimizes the odds of people finding flaws and reviewing your mortgage application.

Concluding Remarks

There are many reasons why mortgage applications are declined. But generally, it is normally based on debt, income, and the customer’s credit score. 

In order to boost your odds of having your loan application approved, it’s best to consult a loan advisor to steer you through the process.

comments powered by Disqus