Mortgage Application: What Do Mortgage Lenders Consider?

A home purchase is a big financial and emotional decision. That’s why homeownership is a widely accepted portion of the American Dream.  It’s the culmination of hard work and determination. Even so, the majority of people will need a mortgage to access this dream. It is crucial to know the factors mortgage lenders consider during the Atlanta mortgage application process. However, knowing this information in advance can give you the confidence to move forward towards your homeownership dreams.

Credit Report

Your report provides valuable information on the decision-making process for mortgage lenders.

• Payment history. This may be one of the most well-known areas of concern for mortgage lenders. Any missed, or late payments on car loans, house payments, credit cards, lines of credit, or other loans will all likely require an explanation. Multiple late or missed payments can be a significant red flag regarding financial responsibility. Careful attention to due dates and on-time payments will go a long way towards a positive credit picture.
• Derogatory accounts.  Items such as judgments, collections, charge-offs, settlements, or bankruptcies can classify you as a high-risk borrower. These items are heavily weighed and can take a long time to overcome.
• Credit Utilization Ratio.  This term refers to how much credit you have available to you compared to how much credit you utilize. An ideal credit utilization ratio is 30% or less, meaning you are not utilizing 70% of the credit currently available to you. If you are maxing out all of your credit lines, this could mean you have maximized your financial obligations. Consistently paying down credit card balances will help keep this ratio in check.
• Disputes. Although there can be justified reasons for disputing an item on your credit report, outstanding disputes prevent a clear picture of your current credit situation. Take action on any disputes or discrepancies on your credit report and get a resolution before applying for a mortgage.

Assets

The Atlanta mortgage application will include a place to list assets, such as cash, investments, property, or other high-valued assets. Your mortgage lender will likely want documentation of assets, including bank statements. Assets can indicate to lenders that you have other means of payment in cases of emergency, as well as access to down payment funds.

Income

It isn’t easy to make a mortgage payment without proper income. That’s why income is a crucial component of the Atlanta mortgage application. Not only is the amount of income available important, but the stability of that income is also crucial. Lenders prefer to see a steady and stable work environment rather than a shift from job to job in recent history, indicating a lack of income stability.

Another ratio, the debt-to-income ratio, works similarly to the credit utilization ratio in that it compares the amount of income you receive to the amount of debt incurred. A ratio that is too high could represent an inability to meet the mortgage payment should unforeseen additional expenses arise. This could result in a higher interest rate to offset this risk, but if the ratio is too far off the mark, it could prevent you from obtaining the mortgage.

Your lender will ask for documents to verify your income and will often verify both employment and income with your employer, so accuracy is important on your Atlanta mortgage application to prevent delays.

On Your Side

The most important thing to remember is that your mortgage lender is on your side. It’s their goal to partner in your American Dream when possible, not to prevent it. Providing timely and accurate information will help your mortgage lender help you on your journey. Call Atlantic Home Mortgage to begin the homebuying process. We pride ourselves on providing as much information as possible so that our clients are aware at all times.