Getting to Yes! What You Need to Know to Get Your Mortgage Approved!

Everyone knows that in order to be given a loan, especially a mortgage, that a good credit rating is vital. However, this is just the beginning of what a lender considers when reviewing an application. The lender looks at several different aspects of a persons financial health to gain an understanding of their situation. Much of this information is not found on a credit report. Since lenders generally cannot obtain this information themselves they require the applicant to bring in the documentation they need.

One of these important elements is the debt to income ratio. The ratio is a look at the applicants monthly debt and expenses as a function of net income. Comparing current debt load with income gives a lender a good idea how much more debt can be handled. For this purpose applicants will need to bring in tax returns and check stubs and any other financial documentation to substantiate statements of income. Ideally, an applicants debt ratio would be about 1.3, in other words there is 30% more income than the applicant needs to pay his monthly debts and expenses.

An applicants payment history is also a key element of the application, lenders look very specifically for late payments. Lenders view a habit of making on-time payments very favorably. While payment history information is part of the credit report, a mortgage lender weights this information differently than the credit bureau reporting FICO scores. Because of this mortgage lenders study the applicants credit report to find all the information possible about an applicants payment habits. If there are habitually late payments showing on a credit report it is a good idea to attach a letter of explanation to the loan application.

Mortgage lenders also look at the applicants other assets besides his regular income to determine if the applicant has the means of making an equity investment, or down payment. If the client has large additional assets and they are fairly liquid ” like a large stock portfolio ” this may help offset other factors, such as a less than optimal debt ratio. If the applicant has enough additional assets to make mortgage payments outside of his regular income, this is viewed favorably by most lenders. This information is usually not included in a credit report and is why a mortgage lender will ask for statements from the applicants brokerage accounts and retirement accounts (IRAs, 401(k), etc.).

There is one important element of loan approval has nothing to do with the applicants credit score or overall financial status. This factor is the property being mortgaged. Every lender will want to see an appraisal of the property that their client wants to purchase. This ensures that the lender will not loan more than the property is worth. The resell value of every property must be enough to cover the original amount of the loan in case of foreclosure.

Knowing what the mortgage lender looks for can help the potential home buyer get their application in good form. The above can help the potential mortgage seeker determine what elements of his financial position should be changed or corrected to make approval more likely.

Wendy Polisi is the founder of Credit Repair College and Finance the Dream. Credit Repair College empowers people to take control of their financial future by learning everything they need to know to repair credit on their own. For more information on fix credit rating please visit them on the web. Finance the Dream offers lease options throughout the United States.