Buying a home? Here's what your lender is going to need to see first.
PROOF AND SOURCES OF INCOME
No one is going to loan you hundreds of thousands of dollars without first being certain that you have the means to repay it. That is why lenders are always going to ask to see your sources of income and proof that you have been making that money for as long as you say you have.
This may consist of pay stubs, bank statements, and even employer verification to be certain your reported income is accurate.
LARGE OR UNTRACEABLE DEPOSITS
Did someone just gift you $5,000? If that's in any way going to be related to your home purchase, your lender is going to want to know about it. While most loan products do not restrict you from using gifted money towards your down payment or closing costs, the lender will still want to discuss with you about it.
If you have taken this money on loan from somewhere, you need to disclose that so they can factor the monthly repayment cost of that loan into your debt-to-income ratio.
ACCOUNTING FOR ALL RECURRING DEBTS
Your internet, your phone bill, your credit card's minimum payment--all of that will have to be accounted for. In fact, your lender is going to ask for a lot of information so that they can accurately determine your debt-to-income (DTI) ratio. This will help them figure out your affordability or, in other words, how much money they can reasonably loan to you and still expect repayment.
This may seem like a very tedious, nit-picky process, but let's face it: the lender is in this business to make money. They don't want to just be handing big loans away to everyone who walks through the door. Your DTI and other aspects are going to affect how much they are willing to lend you, but so long as everything checks out, they will be willing to give you a loan.
Not sure about your DTI? There are plenty of online calculators you can use to get an idea of it ahead of time.
OVERDRAFT CHARGES/NEGATIVE BALANCE
Have you recently overcharged your credit card? That's something that can drastically bring down your credit score and it's also a big red flag for lenders. Carrying high balances and going over your limits tells lenders that you may not have enough available income to afford your mortgage payment.
That's why, in the 6-12 months leading up to your mortgage application, you need to stop applying for credit line increases and new financial products and instead focus on paying down all your current balances. Be sure you have 12 months or more of solid, on-time payment history and low credit utilization rates, which shows you have a lot of available credit but you hardly need any of it because you're living within your means.
This will have a hugely positive affect on your credit score too, which in turn, will help you qualify for a lower interest rate.
When you’re ready to discover which loan will be right for you, contact our team of loan experts at Horizon Lending Services.