A borrower in a mortgage transaction is kind of viewed like a chair with four legs. The legs on the chair provide strength to the base or seat of the chair. If one leg is shorter than the others, the chair is still strong, but may wobble a bit. Shorten two legs and the chair becomes less stable. Three week legs and the chair is just waiting to tip over on you.
So how strong are the legs of your chair?
Consider each of these items as one leg in your chair.
- Employment. Having a minimum 2 year history in your line of work (this can include education). Employment gaps that don’t make sense to an underwriter, may cause issues with getting your mortgage approved. A lender wants to know that you are going to be able to keep your job and therefore, make your mortgage payments on time.
- Income. If paid salary and regular hours, this can be pretty easy to compute. When your hours vary, the income needs to be averaged. Also, if you’re paid bonuses or commission and going for the best interest rate (not stated income or no income verified), then your bonuses and commissions are typically averaged for the past two years. Debt-to-income ratios are crucial for qualifying for mortgages. A $500 car payment equals $50,000 less home that you can purchase.
- Savings and assets. There are many zero down loans, even if you are considering that route, it is in your best interest to have at least three months of your future mortgage payments in savings after all closing costs are paid. The more money you can put down towards a home, the better your interest rate will be.
- Credit Scores. Having scores above 680 are a worthy goal. A score 700 or more is even better! Pay your accounts on time. Keep your balances below 30% of the credit limit for the best scores. Take care of your credit and it will take care of you. Credit is reflective. If your credit score is on the low end, meet with a Mortgage Planner to help you develop a plan to improve your score.
All of these factors impact how a borrower qualifies for a mortgage. The more strong legs you have reduces the risk to the lender, which in turn means a better interest rate for you!