Qualifying for a mortgage usually requires the ability to meet the basic standards put in place by a lender. Doing so can often provide borrowers with the opportunity to lock in the best possible rates and terms, depending on the exact nature of their current financial circumstances. While the specific qualifications for a mortgage do tend to vary slightly from one lender or lender program to the next, there is a core criteria that is highly likely to apply in just about every situation, including matters related to current income level, credit history, debt to income ratio, and even the ability to provide a down payment or a deposit on the property.
One of the primary qualifications for a mortgage is the ability to repay the debt according to the terms and conditions that apply to the home loan arrangement. At the heart of this qualification is consideration of the amount of income that is generated by the loan applicant. Many lenders require that borrowers have a minimum amount of income coming into the home each month. The income may include sources such as disbursements from a trust fund, income from a job, and any other source of income that can be verified as ongoing and consistent. When the income is derived primarily from employment, some lenders will require that the applicant have at least a couple years with the current employer.
Along with a minimum income, the qualifications for a mortgage also focus on how much debt the applicant is already carrying. This includes debt of all types, ranging from balances on credit card accounts to car loans and any other debts currently outstanding. The idea is to determine if the applicant can reasonably afford a mortgage payment of a certain amount, given the obligations he or she has already assumed. Without a reasonable debt to income ratio, many lenders will not move on to the other qualifications for a mortgage, choosing instead to reject the application at that point.
In addition to the ability to manage current debt with available income, lenders will also look at past credit history to determine if the applicant represents a reasonable level of risk in relation to the benefits of approving the mortgage arrangement. Many lenders will look at not only the credit rating but the actual entries on one or more credit reports to get insight into how well the applicant manages money. For this reason, making sure the credit report is accurate and up-to-date is very important before applying for a mortgage loan from any provider. It is not unusual for some lenders to require that the credit rating be at a certain level before the loan application can be approved, even for high-risk mortgage deals.
One of the remaining qualifications for a mortgage has to do with the ability to apply a down payment or deposit to the home purchase. This can sometimes be a factor that can make the difference between acceptance and rejection of the loan application. A significant down payment that lowers the amount on the loan request well below the market value of the real estate in effect reduces the level of risk that the lender assumes in granting the loan. If the applicant’s credit rating is at or near the minimum required, a sizable down payment could be just enough to prompt the lender to approve the mortgage, albeit at a slightly higher rate of interest.