Understand what lenders are looking for
Lenders look at a few different factors when you apply for a mortgage. Their goal is to assess your ability to pay back the loan. Mortgage shopping can be overwhelming and—more importantly—a lot of work. Balzor Singh is experienced in helping prospective homeowners from all backgrounds secure a mortgage that helps make their dreams a reality.
Income and job history
One of the first things that mortgage lenders consider when you apply for a loan is your income. There is no set dollar amount that you need to earn each year to be able to buy a home. However, your mortgage lender does need to know that you have a steady cash flow to pay back your loan.
The minimum credit score for a conventional loan is usually 620. For a government-backed loan, you’ll need a credit score of at least 580, but that can vary depending on which loan you choose. A higher credit score can give you access to more lender options and lower interest rates.
Debt-to-income ratio (DTI)
Your DTI is calculated by taking the total of all your minimum monthly debt payments and dividing it by your gross monthly income. Typically, for a conventional mortgage, a DTI of 50% or less is the benchmark – but many government-backed loans will have higher thresholds.
Lenders want to know that you have some extra money in the bank when you apply for a loan. This assures the lender that you’ll still be able to make your payments if you run into financial trouble. Your lender will ask to take a look at your assets, which include savings accounts, retirement accounts and taxable investments.
Type of property
Interest rate and buyer requirements vary depending on the type of property you’re after. Keep in mind that not every lender finances every type of property (mobile, manufactured, commercial, etc.).
Frequently Asked Questions
Your lender will ask you to provide multiple pieces of paperwork to verify your income. Some documents you might need to provide include:
- At least 2 years of federal tax forms
- Your two most recent pay stubs
- Job letter
- Notice of assessment for 2 most recent years
Most mortgage brokers offer mortgages at a lower interest rate for people with bad credit. They also offer home loans that have shorter repayment terms and no down payments.
Even though there are many other options available, it might be easier for you if your bank offers a bad credit mortgage broker instead of their traditional program.
If your bank doesn’t offer this, then getting approved for a mortgage with bad credit could be difficult. That’s why it’s important to find the right mortgage broker that can help you in your quest for getting approved.
If you had an extenuating circumstance that damaged your credit, it’s a good idea to explain this to your mortgage lender and provide documented proof. For example, if you missed a few payments on your credit card bills due to a medical emergency, you may want to give your lender a copy of your medical bills. This proves to your lender that the bad marks on your report were the result of a one-time instance, rather than a pattern.
If your low score is not a result of a one-time incident, you may want to look into alternative options for securing a mortgage such as a private lender.
Your lender might ask you for some or all of the following when they verify your assets:
- Up to 60 days’ worth of account statements that confirm the assets in your checking and savings accounts
- The most recent statement from your retirement or investment account
- Documents for the sale of any assets you got rid of before you applied, such as a copy of the title transfer if you sold a car
- Proof and verification of any gift funds deposited into your account within the last 2 months
Your lender may also ask you for supplemental information on any debts you owe, like a student loan or an auto loan. Cooperation with your lender only makes the process easier, so be sure to provide any requested information as soon as possible.
When you work with Balzor Singh, you will be guided through the following process:
- Apply for mortgage approval
- Receive approval letter
- Go house hunting and choose a property
- Verify the details with your lender
- Close the deal
When applying for a mortgage, you will need to have the following ready to present to lenders:
Proof of income
Proof of assets & liabilities
Documentation of your debt-to-income (DTI) ratio
How will lenders decide whether to give me a mortgage?
The following is a list of things lenders consider when assessing your application:
Consistent source of income
High credit score
Debt-to-income ratio under 50%
Savings accounts and/or investment accounts
Inconsistent source of income
Low credit score
Debt-to-income ratio over 50%
Few assets such as savings accounts and/or investment accounts
Why work with a mortgage broker to secure your residential mortgage?
A broker understands the ins and outs of the local market, interest rates and current mortgage trends, meaning they will also know which lenders and mortgage options will be the best fit for you.
Peace of mind
Mortgage shopping can be overwhelming. A mortgage broker can take care of the details while ensuring you understand every step of the process.
Accomplish your goals faster
Working with a mortgage broker means getting advice on setting achievable financial goals and making a solid plan to make them a reality.
Consider options outside of traditional loans.
If you’re unable to secure a mortgage through the usual means, a private lender may be an option.
Save money for what matters most.
Renegotiate your mortgage at renewal to lower your payments and spend more on the things you love.
First Time Home Buyers
Your first home is not our first mortgage.
If you’re buying a home for the first time, take advantage of our in-depth mortgage experience. And lower rates, of course.