How to Demonstrate You Qualify for a Mortgage Loan
In order to be approved for a mortgage loan, lenders need proof that you have enough income to repay the loan. They will also check that you possess necessary assets like bank accounts and retirement savings; they’ll want to see a list of your possessions and liabilities.
Assets that can be used to qualify for a mortgage include cash-on-hand, savings and investments as well as properties or other tangible items that you could access quickly if necessary. Lenders will look at the last two months’ statements from checking accounts, savings accounts, money market accounts and investment accounts in order to assess your capital.
Other assets you can use to qualify for a mortgage include securities such as stocks or bonds. Your lender will require proof that you own the security and its current value is at least equal to or greater than the amount being borrowed.
Your debt-to-income ratio (DTI) is another factor lenders take into account when approving a loan. It demonstrates how much of your monthly income goes towards paying off all bills, such as your mortgage payment. DTI guidelines vary by loan type; typically, conventional mortgages have a maximum DTI limit around 43%.
Additionally, you must demonstrate proof of employment. This can be done through original pay stubs for the past 30 days and your most recent federal tax returns with W-2 forms. Moreover, make sure to obtain your employer’s name, address and contact info.
The lender will examine your employment history over the last two years to confirm that you have consistently worked for the same company during that time. They’ll also want to know how many jobs you have held and whether they were permanent or temporary in nature.
Documenting your permanent residence in the United States is also essential. Your lender may require a copy of your green card, immigration documents or an approved visa.
Your credit score can help you demonstrate your ability to repay a mortgage. Most conventional loan lenders require at least 620 for conventional loans; however, FHA, USDA and VA loans typically require at least 580.
In addition to your credit score, lenders will also need to verify that you are a legal resident of the United States and possess a social security number.
You can use alternative data to improve your credit score, such as paying rent on time or having a consistent history of making payments. This strategy works especially well if you have no or minimal credit history.
To reduce delays in the mortgage process, be organized with all your documents beforehand. Doing this will save you valuable time and hassle during review by your lender.