Mortgage Qualification | New Homes Market Center
Lenders review three major factors when determining your ability to pay back a loan or to qualify for a mortgage:
1. Your Debt & Credit Score
2. Your Income
3. Your Assets
These factors also help them determine how much house you can afford. To do this, they use formulas called qualifying ratios. These debt-to-income ratios vary depending on each individual’s situation, but in general, lenders like to see what they call a 28 percent front-end ratio and a 38 percent back-end ratio. However, if you ratios are higher keep in mind there are always compensating factors that lenders will consider and allow for an approval anyway.
The front-end ratio is your proposed monthly housing expenses including your principal, interest, taxes, and insurance (PITI) and mortgage insurance (MI), if applicable, divided by your total monthly gross income.
A back-end ratio is your total minimum debt payments including your proposed PITI payment and MI divided by your total monthly gross income. Remember, each case is individual, and you may be able to qualify with higher ratios based on your particular compensating factors like credit and assets. When you have good credit scores, lenders may be more lenient with the ratios and will not require as many assets in reserves.
Lenders may also look at your employment and rental history depending on the loan program. Usually the lender will verify two years employment history and one-year rental history. If you have just changed employers or have had a lapse in employment, you may still have the ability to get approved, you will simply need to give reasons for the change or lapse.
Although lenders look at all three factors for loan approval, you may not have to have all three to qualify for a mortgage. There are hundreds of loan programs for homebuyers and it is easier to qualify for a mortgage than most people think. To find out what mortgage you will qualify for please fill out our secure online application and we will put you in contact with some of the most competitive mortgage lenders.