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Essentially there are three components a lender will evaluate when considering you for a home loan:

1. Income
2. Assets/Money
3. Credit/Debt

These three items will help the lender determine what loan program and what amount you may qualify for. Let’s review further the three items and what they mean to you.

Income

When evaluating your income, a lender will also assess your job stability. This will allow them to determine if your income will be consistent and allow for you to make your monthly mortgage payments.

Assets/Money

This is the amount of money you will be able to pay as a down payment and the money you have available to cover closing costs. Some lenders will require additional funds left in your accounts after you close.

Credit/Debt

A lender will evaluate your ability to pay a mortgage based on your current monthly bills (credit card payments, car payments, student loans, and any other monthly payments you are required to make). Typically a lender will not want to see more than 36% to 40% of your gross monthly income going towards your new house payment and monthly bills combined. Although if you do not meet this criteria there are many loan programs that overlook this guideline.

Collecting Mortgage Rates for Home Loans

Make sure you are getting a fair rate. To do this, you must get quotes on mortgage rates from several different companies. It is important to make sure you are comparing mortgage rates based on equivalent loan programs.

Appraising Property Values

Once you are in contract to buy a specific home, your lender will order an appraisal of the property you wish to purchase. This component of obtaining a home loan is one that protects both you and the lender. This assures both parties that the property is worth what the purchase price. The property values are based on several factors including how long the home has been on the market, the property values in the neighborhood, and the overall condition of the house.

Owning a home is more possible now than ever before. Educate yourself by researching the laws and regulations that protect you as a homebuyer, so that you don’t end up spending more money than you have to.