Are You Eligible for a Mortgage Loan?

If you are looking to buy a home, you will likely need to apply for a mortgage first. While many financing options are available for homebuyers, nearly all lenders require borrowers to meet specific criteria before agreeing to loan the money needed to purchase a home.

Are you curious whether you qualify for a mortgage? Here are some factors lenders look at when considering applications:

Your Household Income

While there is no minimum dollar amount you must earn to purchase a home, your lender needs to be sure that you have enough money flowing in to cover your mortgage payment on top of any other bills you might have. To do so, your lender will need to make sure you have a steady, consistent, and reliable income. In addition to your salary, lenders will also consider other forms of regular revenue, such as military benefits, commissions, earnings from a side job, and more.

Your Credit Score

Another way that lenders determine if you will be a reliable borrower is by your credit score: a three-digit rating on your likelihood to pay back a loan on time. Though credit score requirements are bound to vary by lender, the minimum FICO® score required to be approved for a conventional mortgage is approximately 620.

Several factors determine your credit score, such as your payment history, total levels of debt, number of open accounts, etc. Behavior such as late or missing payments, high credit card balances, or defaulting on a loan can result in low credit scores.

Since lenders are more confident these borrowers will meet the obligations of a mortgage, those with higher credit scores typically have access to more loan options and lower interest rates.

Your Debt-to-Income Ratio

Lenders will also use your debt-to-income ratio (DTI) as a method of determining your ability to repay the money you have borrowed. To calculate your DTI, add up all your monthly debts—student or automobile loans, credit card payments, etc.—and divide that sum by your gross monthly income. Lenders use this percentage to determine two things: how well you manage your monthly debts and if you can afford your mortgage payment.

This list is not exhaustive, and there are many other factors considered when it comes to mortgage eligibility. However, taking the time to consider whether you qualify for a loan before embarking on your home buying process will likely save you both time and money. If you are interested in Coastal Custom Mortgage’s loan application process, reach out to one of our lenders today! We’re happy to help you find out if you qualify, and there’s never any obligation.