You might have picked your dream house, might have thought about the the home plans, where to keep the furniture and hang the paintings, but did you even think about what your financial situation is? Well, there are many cases where you may be unattractive as a borrower. Are you self employed? Have you made too many big purchases recently? Are you in high debt? These are the main questions any lender would look into before offering you a loan.
Approval of a real estate transaction depends on the approval of three things: the borrower’s credit, the borrower’s income, and the house itself. The borrower’s credit must meet minimum guidelines, their income must support their ability to repay the mortgage, and the house they want to buy or refinance must appraise for the amount needed.
1. Your Credit Score:
One of the first things a potential lender will do to determine your ability to make payments on a mortgage is check your credit score and review your credit reports. This will tell them how sensibly you’ve handled credit in the past. Your credit report determines your credit worthiness. If you have a credit score that is low, lenders will have a hard time trusting that you’ll pay back your full loan on time.
2. Your Employment Status:
Most lenders won’t give out loans unless you’ve been working at the same job for two years. This is due to the high rates of unemployment and the fear that you could end up in a job where you won’t be able to make your mortgage payments.
3. You don’t have a down payment:
Lenders prefer that borrowers be financially vested in their new home from the get-go. So if you don’t have a down payment, you’ll have to jump through more hoops to showcase your financial worthiness, and private mortgage insurance will most likely be a requirement of your loan. However, your lender may be able to help you find down payment assistance programs to help bridge the gap.
4. If you have many financial responsibilities you aren’t taking care of:
If serious delinquencies show on a credit report, an underwriter will simply deny the loan. This is how mortgage lenders measure risk when making loans. So your borrowing capacity depends on your financial status, your job and whats provided in the credit report.