How Do I Qualify For A Mortgage?

When a lender reviews your loan application, they’ll look at the following factors to determine if you are mortgage-worthy:

  • Income
  • Debt
  • Credit
  • Employment
  • Property or collateral
  • Financial resources for a down payment and closing costs

More specifically, your ability to qualify for a mortgage will depend on the “Four C’s” of credit:

  • Capacity to repay the debt depends on your earnings and employment history, expenses, number of dependents, and other obligations you have.
  • Credit history of how much you owe, how often you borrow, if you pay your bills on time, and if you’re living within your means.
  • Capital, or the amount of cash you have for a down payment and closing costs, as well as cash reserves to deal with repair or replacement expenses that may arise after you’re in the home.
  • Collateral to protect the lender’s investment if you can’t repay your loan. The home you buy must be worth enough to back up your loan.

You’ll have to meet certain financial standards to qualify for a mortgage. Most lenders want to make sure your monthly mortgage payment (including taxes, insurance, and all other fees) doesn’t exceed 28 percent of your gross (before-tax) monthly income. Lenders will review your existing debts. Your combined mortgage payment and other debts should be limited to 36% of your gross monthly income.

Here are some additional tips to check out before buying a home:

  • Look into government-sponsored lending programs (offering benefits to first-time homebuyers, lower-income purchasers, and military veterans) as well as private (conventional) mortgage programs.
  • Take time to learn how loan costs, insurance, and other fees will affect your repayment amount.
  • Important: Be prepared to negotiate with real estate agents, lenders, and sellers.