If you’ve been looking at getting a mortgage, you know your credit score is an important factor to get qualified. However, what you may not know is that mortgage lenders look at your entire financial profile.
When lenders approve you for a mortgage, there is an element of risk. You may make late payments or even default on the loan. This possibility is the reason that they employ underwriters who go over your entire loan file and use information about you to make a decision.
Who is an underwriter?
An underwriter is someone who helps the lender decide whether the loan should be approved. They look at a borrower’s financial eligibility and determine whether the risk is low enough to approve the loan.
They look at a variety of items such as:
Your yearly income is a significant factor in whether your loan will be approved. The underwriter needs to make sure that you can afford the payment on your mortgage and that it doesn’t exceed certain debt-to-income ratios (your monthly income compared to your monthly debt). Income also determines your eligibility for certain loan programs that have income limits, such as USDA.
Current Debt & Credit Profile
Your current monthly debt and credit profile help the lender understand your relationship with credit. If you have significant current debt, or a rocky credit history it may signal that you are a riskier borrower.
Your credit profile can include:
- Unpaid loans and credit cards
- Foreclosures and repossessions
- Credit card and loan balances
- Late payments
- Credit score
Your down payment helps the underwriter understand how invested you are in this mortgage. A bigger down payment means that you take on some of the risks and make it a safer bet for the lender. However, having no down payment won’t stop you from getting a home. There are low to no down payment loan programs available for those who need help getting into their homes.
Your employment history also helps the underwriter determine whether you’re eligible for a mortgage. Someone who has job instability is much more likely to default on a loan or find themselves making late payments. This increases the overall risk of the loan and means that most loan programs have guidelines to help the underwriter make a decision. They factor in:
- How long you have worked in the same field
- How long you have been at the same company
- What your payment schedule looks like
- Whether you are commission-based, self-employed or a W2 employee
If you would like to schedule to go over this process in more detail, click here and speak with one of our mortgage specialists. The consultation is free and will be the perfect time to go over any questions you may have about the process and look at numbers specific to you.