To decide if you are mortgage ready, lenders consider your income, employment history, assets, credit history and the amount of debt you owe. Mortgage companies go to great lengths to uncover all aspects of your financial life. They in essence perform a “financial colonoscopy”. Be prepared to answer questions and provide documentation regarding the following areas.
1. YOUR INCOME
Income can be from a variety of sources to include paid work, self-employment, retirement and social security income. Any source of income which you report on your income tax return can be counted. You must be able to show two years of tax returns for income derived from self-employment or income from which you receive a 1099MISC. Income from part-time employment is usually not considered.
2. YOUR EMPLOYMENT HISTORY
Do you have a stable work history or are you a “job hopper”? Switching jobs within the same line of work, especially if it was for advancement, is not viewed unfavorably.
3. YOUR ASSETS
Do you have money for a down payment, closing costs and if required, cash reserves (money left over after closing). Lenders will verify the source of all funds used in the transaction. Talk to your lender before using cash to purchase money orders to pay the earnest money or other charges. Do not move money around, pay off large bills or accept large gift funds.
4. YOUR CREDIT HISTORY
The lender will pull your credit from all three credit bureaus and use the middle score to qualify you for a loan. Mortgage lenders use a different scoring model than those used by companies such as Credit Karma. Most lenders require a 620-credit score. If your score falls short the lender can suggest steps for improvement.
5. YOUR DEBT
The amount of debt you have affects your ability to repay the loan. Excessive use of credit will not be looked upon favorably by the lender and will limit the amount you can qualify for.