You’ve seen your dream home, now all that’s left is to find out if you have a good chance at getting a mortgage loan. You know that most borrowers need to get pre-approved before they can qualify for a loan, but what do mortgage lenders look for?
It’s not hard to guess — they want to know if you’re creditworthy. Lenders consider plenty of different things when assessing a borrower’s creditworthiness. And lenders will look at far more than just whether you’ve paid your bills on time in the past.
Ready to know what will help you show mortgage lenders you’re a responsible borrower who makes wise financial decisions? Read on to know what determines your eligibility.
Do mortgage lenders asks for bank statements?
Absolutely. Most mortgage lenders ask for bank statements as they are looking to make confirmation that you can service the loan based on your ability to save. This is one of the factors that will play a role in the actual approval of your loan amount.
They want to be sure you have a reliable source of income. Not just the required down payment but additionally a monthly payment (principal, interest, and insurance) in case they need to draw money out of your account for any reason.
If you have not been employed for a long time, then mortgage lenders may ask you to provide additional proof of income such as tax returns and W-2 forms.
Is unemployment part of what mortgage lender look out for?
Yes, a mortgage lender will be interested in your current and recent employment history. However, you may be able to get a mortgage even if you are currently unemployed.
If you are actually unemployed, they will ask to see if you have made any job searches and what the results were. In many cases, they will want to verify income during the period of time you were employed to make sure there aren’t any discrepancies.
Mortgage lenders do not like risky loan scenarios, so they want to make sure you are trustworthy and will be able to pay your monthly obligation. However, you might want to call your lender to see what packages are available for you.
Can mortgage lenders see credit card debt?
Yes, mortgage lenders can see credit card debt during the application process. While this doesn’t necessarily mean you won’t get a mortgage if you have some credit card debts, it does rate your situation as worse than someone who has no balance due on their accounts.
If your debt is high, but you have a good income, show a good history of sound credit management, and other factors which minimize risk for the lender, they may approve you for a loan despite having significant credit card debt.
Depending on the size of the debt, it could be enough to turn the lender away from giving you an FHA conventional finance option.
Do you need to show your credit card statements to mortgage lenders?
Some lenders may want to see credit card statements; others may not care. Although your credit card statements will be helpful to your mortgage lender, it’s not compulsory during mortgage loan approval.
Review each lender’s requirements carefully before submitting your application, and bring your credit card bills directly to closing if possible.
Do mortgage lenders call your employer to verify employment and income?
Yes, it is common for a mortgage lender to call your employer directly to verify employment and income. This is done for 2 reasons:
- They want to make sure you really have the income that you say you do.
- It helps them determine if your job is stable enough for them to lend to.
Some mortgage lenders may ask you to obtain a letter from your employer. This is to verify that you are in fact employed and what your salary is.
Your lender will be at ease knowing that you have a steady income that will qualify you for the loan amount requested.
Do I need to show mortgage lenders my rental history?
No, but it will greatly strengthen your application. Mortgage lenders are accustomed to reviewing the rental history of potential borrowers. Many of them consider a rental history an additional assurance that the borrower has stable and predictable income.
Therefore, if you can show a lender a good rental payment history, it can only help your loan application.
The best way to show this is by seeing where you have been able to consistently pay rent on time, without a lot of hassle or work for your landlord. If it is something you don’t have any experience doing, they may want to see a little more proof as well.
Do mortgage lenders look at closed accounts?
Yes, they do. Mortgage lenders do consider closed accounts for qualification purposes if the borrower has a good payment history.
However, the amount of weight given to this will vary depending upon the number of accounts that are closed. Other factors like credit mix and overall credit history and lender policies also influence your application approval.
Mortgage lenders don’t like an applicant who regularly makes late payments. They would much rather see a long credit history with no missed payments and good credit utilization than a short one with the same pattern of bad credit usage.
Can student loans stop mortgage lenders from approving my application?
In general, a mortgage lender won’t check for student loans. It is up to you to disclose on the loan application whether you have any student loans. If for any reason, before you include that in your application, ensure those loans are in good standing.
However, most lenders don’t consider student loans as a factor in qualifying you for a mortgage. Student loans are generally factored into whether a potential borrower shows a good credit score or not.
A rule of thumb is to view your loan debt as an investment in your future and eliminate it before it affects your credit.
Do mortgage lenders look at retirement accounts?
Yes, they do consider retirement accounts in the mortgage application process. As with all aspects of a mortgage application, the lender will verify to their satisfaction whether you are telling them the truth concerning your assets and liabilities.
Not surprisingly, for most mortgage applications they need to see proof. Many of them don’t want just your say-so- that you actually have money sitting in an account somewhere.
Many mortgage lenders do this to determine the amount and type of financing that you can secure.
Is a divorce decree needed for my mortgage loan application approval?
If you’re a first-time homebuyer, getting approved for a mortgage loan can be confusing. In many cases, your divorce decree is not required to be obtained for the approval of your mortgage loan application.
The laws regarding divorce decree are federal laws, and not every state conforms to them. However, there are some conditions that do require you to include the divorce decree for application approval purposes
If you are in doubt, ensure to verify with your local real estate office. But yes, submitting a certified copy of the divorce decree along with the application is recommended.
What about 401k?
A lot of mortgage lenders do take a look at your 401k or other retirement plan investments. Mortgage lenders want to be sure that the borrower has enough liquid cash to close on a loan.
Having significant savings in retirement accounts after meeting other qualifying home purchase criteria is helpful. It’s an indication that you are disciplined enough to be an excellent candidate for homeownership.
Unfortunately, it’s common that 401k funds are counted toward the debt ratios analysis used to determine approval of your mortgage. Your best bet is to have an ample amount of savings outside your 401k.
Can my application be approved when furloughed?
It depends. If you are a furloughed federal employee, you will still be able to apply for a mortgage. Like any other loan applicant, you must provide timely and accurate financial information to support your application.
Federal employees whose pay and benefits have been disrupted will be considered for special payment arrangements, foreclosure relief, and other incentives.
However, being placed on furlough by your employer will depend upon what policies your lender has put into place regarding such circumstances.
Conclusion
There’s no all-in-one answer to the question of what do mortgage lenders look for when reviewing your application.
Mortgage applications are not treated the same in every lender’s system. This means that while one application may be accepted for a specific set of circumstances, another mortgage application may be denied for the same situation. This is called “lender discretion.”
Each lender determines its own borrower guidelines and places restrictions on certain programs.
Although it is possible to switch mortgage providers at any time, most people choose to apply for a new mortgage when they are purchasing a home. It can be overwhelming trying to identify reliable mortgage lenders.
The majority of mortgage loans are available from a number of providers and terms and conditions vary. But you should always check to see what could be available by comparing lenders if this is your first time.