Choosing a home with the best master bathroom or most durable floors can seem like a very important part of the purchase process. Really, though, all of that is just fun and research. For some, qualifying for a home loan in the first place is the more difficult task.
Qualifying for a home loan generally depends on your ability to meet two criteria. The first standard of measure is that you be in a financial position that will allow you to pay back the loan. Lenders don’t always make this process easy; they take a hard look at your records in order to determine your ability to pay. The first thing they look at? Your current employment.
Many home loan applicants believe that having good employment will lead to their approval for a loan; generally, though, qualifying is more complex than that. In addition to what you do, a lender will also examine the length of time you’ve been with an employer or working in a certain field. Two years with a particular company or working in a particular field will be considered steady employment, and will help you to present yourself as a good risk.
After looking into your employment history, your home loan lender will then look at how your income compares to your debts after your new mortgage payment has been added in. Paying off as much debt as possible before applying for a home loan is a good idea. Why? Because in order to qualify for a home loan, the lender has to feel that you will have enough money to make your all of your debt payments comfortably. If the lender you work with feels that you have too many debts when compared to your income, he or she may decide that it would be better to offer you a smaller loan or a higher interest rate. Or won’t approve you at all.
Your lender has evaluated your debt and income comparison, and feels that you can make payments comfortably? Next, they’ll take a look at the next standard that successful applicants must live up to: your “willingness to pay.” To decide whether they believe you’ll be willing to pay your home loan in future, they look at your payment history by pulling your credit report. If you have consistently been on time in paying your debts in the past, it will look good on your application for a home loan.
Another thing that home loan lenders consider when determining whether you’ll be willing to pay? What your plans are for the home you wish to purchase. If, for instance, you are planning to live in the home as your primary residence, a home loan lender will generally believe you have strong motivation to repay your home loan.