Please use this information to help you understand how a potential lender might determine your ability to obtain a mortgage. There are a variety of loan programs available to help buyers obtain the right mortgage product and interest rate.  Before you begin to look for a property, it is extremely important to communicate with a mortgage professional in order to get a complete and very detailed understanding of how much you can afford and which loan programs will best fit your needs.

 

Lenders make their judgment of your mortgage application by by considering five main points:

 

(1) Credit History: Lenders generally rely on a comprehensive credit report that provides a record of how much you owe and how you manage your reoccurring monthly debt (car payments, credit cards, student loans, mortgages, child support, etc.)

 

(2) Source of Income: Lenders generally prefer a two-year history of employment in the same line of work or a verifiable source of income (investments, stipends, alimony, SSI, etc.)

 

(3) Income/Debt: Lenders need to determine your verifiable gross monthly income from all sources and all outstanding monthly debt payments.

 

(4) Source & Amount of Down payment: The down payment should come from savings, sale of property, liquidation of investments or retirement plan, gift from an interested party, or seller contribution. Some lenders provide mortgages with as little as 0% down, however, a larger the down payment may be required to obtain a more favorable interest rate or to simply qualify for the mortgage loan. As you put more down, like 5%, 10%, or more than 20%, different guidelines are used to determine what kind of mortgage program is best. If you put less than 20% down (like many homebuyers) some mortgage programs will require you to pay a small premium each month for Private Mortgage Insurance (PMI).

 

(5) PITI: Principal, Interest, Taxes & Insurance (for condominiums and some town homes, the monthly assessment is considered instead of insurance). The principal and interest are determined by length of time allowed to pay off loan (15, 20, 30, or 40 years), the interest rate, and the amount of the loan. Municipal and county governing bodies determine the monthly property taxes. All lenders require homeowner’s insurance and for condominiums and some town homes the condominium board determines the assessment.