5 Things Lenders will Look For

5 Things Lenders will Look For

 

Annette Bui| Updated May 2, 2020 | Mortgage Programs 101

 

Credit

One of the first things a lender will look at is your credit worthiness, do you pay your bills on time? As they say, history is a good indicator of future repayment. If your credit is less than perfect, they may accommodate based on higher interest rates. It is important to understand the different tiers of credit scores and how it impacts you. The common misconception is credit scores under 640 do not qualify. This is not true due to the broad range of investors available; you can still qualify down to as low as the 550-580 credit scores.

Affordability

while many government sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae will look at your gross debt to monthly income ratios. There are various loopholes that will take place such as cash reserves, credit scores, Veterans and FHA loan applicants get a bit more leeway.

Down payment

Cash reserves for your down payment is important. Many people have the misconception that you need 20% down payment, this is not true as you can put down as little as 3% or even nothing at all in some cases. Down payment can be 100% gifted from family members, must be in the same account for at least two months prior to closing.

Employment

Duration of employment and income is a core factor in qualifying. Lenders will want to see at least two years of being in the same line of work. If you are on a commission basis, this may affect how your income will be calculated. Always remember, lenders will use the more conservative calculation. Meaning if you normally pull in over 100k a year and the most recent year your income has dropped. The lender will go with the more recent lower income.

Assets

Cash reserves are an important factor in any transaction. If this is your first home, typically you are looking at enough funds to pay up to two months of your principal, interest, taxes, and insurance (PITI). Anybody that owns more than one financed property will need to show enough reserves to pay up to two months of PITI per additional property owned.