What factors do most lenders take into consideration?
- Income (money you earned before taxes a.k.a gross income)
- Debt (credit card balances, car loans, student loans, child support, etc)
- Debt-to-income-ratio (normally you are allowed to use 38% of your income towards your debts)
- Credit history (check out Credit 101 for more info)
- Employment history
- Money in savings
What kind of paperwork do most lenders need for the application?
- Copies of tax forms (W2, 1099, etc) for the last 2 to 3 years
- Copies of at least 2 pay stubs
- Copies of 2 to 4 months bank or credit union statements for checking and savings accounts
- Credit cards account numbers and outstanding balance amounts
- Loan numbers and amount owed on installment loans (car loans, students loans, etc)
- Documentation to verify any additional income (child support, pension, etc)
What sort of questions should I ask my lender?
- How long will the loan approval process take?
- Who will service the loan, your bank or another company?
- What are the most popular mortgages you offer? Why are they so popular?
- How long will my rate be locked-in? (Your lender will quote you a rate that will be honored for a set period of time.) Will I be able to obtain a lower rate if they drop during the lock-in period?
- Do you require private mortgage insurance? If so, how much will it cost, and how long will it be required? (Private mortgage insurance (a.k.a PMI) is often required if your down payment is less than 20% of the purchase price. On the plus side, most lenders will let you discontinue the PMI when you acquire a predetermined amount of equity.)
- Do you charge a penalty for prepaying my loan?
- What are the closings costs involved and how long will it take to close?
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