The decision to buy a home isn’t one to be made lightly.  It’s a culmination of months (if not years) of thought and preparation, mentally asking yourself if this is an undertaking you are ready and willing to proceed with.  By the time you have come to the conclusion it’s the right time to buy you are already emotionally prepared, but what about financially?  I hope you can read the following article and determine if you meet the criteria to make a mortgage loan go smoothly.  Here are a few things lenders look for when determining if an applicant is qualified to buy a home:

Credit Usage

How many people know what credit usage is?  If you have entered the world of credit cards and mortgage loans you will likely have an idea.   Credit usage is the percentage of available credit you are utilizing on your credit cards.  A good example of this would be a credit card with a limit of $1,000.  If you have $500 spent on that card you are at a 50% credit utilization.  Here are some tips to improve your credit if you’re thinking of buying a home.

Credit utilization has to be handled carefully, because if it’s overused (meaning your card is too close to the credit limit on a regular basis) it will drag your credit score down.  This is because it shows you are spending too much of your available credit on a daily basis; which is looked at as irresponsible.

How do we solve this?

Keep your credit card balances at a 20-30% limit on a regular basis.  Or pay the last statement balance off entirely every month.  If this is difficult try increasing the limit on your card, but do not spend more.  If you have a higher limit your credit utilization will be lower, therefor a better credit rating.

Credit Rating

Directly affected by the credit utilization, credit rating shows the lenders how someone behaves when debt is given to them.  Do they pay it on time?  Do they finance everything?  Do they put large down payments on the items they buy?  These are all factors that positively or negatively influence your credit score.

How do we solve this?

Be responsible with your debts, don’t finance everything.  Have a few trade lines that you handle responsibly and you will see a positive increase in your score.  The longer these trade lines exist the better the score.

Income

Income should be steady and consistent to qualify for a home loan.  You can read how your job affects your pre-approval here, it should explain what lenders are looking for when it comes to your income. Basically lenders look for long term stable income, something that can be relied on for the next several years.  A 2 year history is required, meaning they want to know you’ve been employed in a certain line of work for a minimum of 2 years.  It doesn’t necessarily matter if you have switched jobs, it may be a black mark on your record if you changed professions though.

Debts

Debts matter because they are held against your income, the more debt you have the more it reduces what you qualify for on a mortgage.  Keep in mind lenders are not factoring in things like cell phone bills and car insurance, but debts that report as a trade line (I.E credit cards / Student loans / Car loans / Recreational loans / etc) are held against you, but only the minimum payments.

Assets

Depending on the loan you are applying for, assets may be required.  Assets are things you own or financial resources you have at your disposal.  An example would be your checking / savings account.   If a down payment is required the lender is going to verify you have it with bank statements.  The deposits on that bank statements matter too. Here is an article about banking deposits you can read to help.

Ability to Repay

The ability to repay a mortgage is a key component in qualifying.  The lender will have formulas they run your income and debts through to decipher if you can afford the payment you’re applying for.  There is a formula called “the debt to income” formula, you can read more about how it’s calculated here.

This formula will take a conservative estimate of your income and debts, and a certain percentage can be used to qualify you for a mortgage payment.  If your loan officer has done their job correctly, that percentage will align with the home you intend to buy and you can then afford the mortgage payment.

In conclusion

A large part of your mortgage loan rides on meeting with a qualified, experienced loan officer that can lead you through the process.  However a big part of it is contingent upon how you handle your financial picture.  It’s never too early to speak with a loan officer about what it takes to qualify, many people are surprised to find they qualify in their current position.  Home ownership isn’t difficult, but it takes planning.

What Can I Do Now?

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Justin Scott

Loan Officer

NMLS 878581

  1. C) 920-530-4484
  2. O) 920-490-8823
  3. F) 920-490-8967

       Executive Mortgage

      NMLS 271650

 909 . E Walnut Street

Green Bay WI 54301