What a Mortgage Lender is Looking For

Income

A lender will consider your household income to determine how large a mortgage payment it will support. Acceptable sources of income would include, full time employment, part-time employment, retirement benefits, military pay, social security benefits, alimony child support, unemployment compensation and public assistance.

Down Payment

A lender will want documentation that you have funds to use for won payment and closing costs. If the money is in a savings account the lender will ask you to provide bank statements to verify the amount and the length of time that the money has been in your account.

Some programs will allow you to receive a gift of the monies need for the down payment and closing costs. There are also grants and down payment assistance programs that give funds for closing costs.

The lender wants to insure that the down payment and closing cost funds are not borrowed and that they will ultimately not affect your debt ratio.

Credit History

Your credit history should demonstrate your willingness and ability to pay your bills on time. Do you have a credit history? If you have never had any credit cards or taken out a loan through a bank, a lender will occasionally consider non-traditional forms of credit. You can document that you’ve paid your rent, telephone bills or even insurance polices.. Your lender will assist you with collection of this information.

Property

A lender will arrange to have a property appraiser determine the value. Generally the loan amount is based on the lesser of the appraised value and the sales price.(Some loan programs require a home inspection report to determine the condition of the property.)

Affordability

The lender will consider the loan affordable if the housing cost (including mortgage payment, property taxes, homeowners and mortgage insurance and homeowner’s fees if applicable), when calculated are a certain percentage of your income. This is called a ratio.

Compensating Factors

A lender may allow ratios that are higher that what is normally accepted if a borrower can show that there are compensating factors relating t their loan request. Listed below are three examples of a compensating factor:

• A Borrower who has been successful in paying previous housing expenses that are equal to or greater than the proposed monthly housing expense


• A borrower that has maintained a good credit history. High credit score


• A Borrower who has the potential of increasing their income