How to Know If You Are a Good Candidate for a Mortgage

For a first-time buyer, the thought of applying for a mortgage loan can be daunting.

Will you qualify? What sort of rate will you get? What type of mortgage should you apply for? Are you even a good candidate in the first place?

The truth is, there are no perfect mortgage borrowers. In general, a lender just wants to see that you’re a safe bet — that you’ll pay your bill on time, care for the home, and make responsible financial decisions while you’re a homeowner.

So, how do you know if you’ll qualify for a home loan? Here are some key factors that lenders consider:

A lender wants to know your monthly income, along with how many debts you’re currently covering with that income. For example, do you have car loans? Student debt? Credit card balances? Most lenders want to see a debt-to-income ratio (DTI) of 43 percent or less, meaning 43 percent of your income goes toward debts. However, some loan programs that may allow higher DTIs. You just need to check with your lender to find out.

Mortgage lenders will also pull your credit report, looking at your open accounts, your debts, and how often you pay those. If you’ve got lots of high balances and overdue accounts, it may send up a red flag. If you regularly pay your bills on time and have no creditors calling, you’ll be a much safer bet for a mortgage.

Your credit score

Your lender will also look at your credit score. An 850 is the highest score you can have, but very few consumers achieve that. Typically, you’ll need to have at least a 580 to qualify for an FHA loan, though some loan programs allow for a lower credit score. If you have a low score, come to the table prepared with a decent down payment.

Your employment history

Next, a mortgage lender wants to know that your income is steady and reliable — and that you’ll be able to use it toward your mortgage payments for the long haul. They’ll verify your employment with your employer, and they may want to see past tax returns to ensure you have a steady stream of income.

Other factors that may affect your ability to qualify for a mortgage loan

Your down payment

Most lenders will require you to put down at least 3% of the purchase price of the home. However, the more money you put down, the less risky you are as a borrower. And a larger down payment can also help you secure a better interest rate.

Your employment status

If you’re self-employed or have a job with irregular income, lenders may be more cautious about approving your loan. You’ll need to provide additional documentation to prove your income and financial stability.

Your savings and assets

Lenders will also want to see that you have some savings and assets, such as retirement accounts or stocks, that you can use to cover your mortgage payments in case of emergency.

The type of property you’re buying

Lenders may be more hesitant to approve loans for certain types of properties, such as fixer-uppers, condos, or vacation homes. Make sure you understand the lender’s requirements before you start house hunting.

Your debt history

Your credit report will also show any past bankruptcies and foreclosures.

Experience hassle-free mortgage financing

Becoming a good candidate for a mortgage requires a combination of financial responsibility, stable employment, and a decent credit score. While the mortgage process can seem overwhelming, resources are available to help guide you through it. Embrace Home Loans offers a wide range of loan products and personalized guidance to find the best mortgage for your situation.

Plus, Embrace has made the mortgage process even more accessible and convenient. Our eSNAPP phone app allows you to easily upload documents, check loan status, and communicate with your loan officer at any time, from anywhere. With the help of technology and a trusted lender like Embrace Home Loans, you can feel confident and prepared as you embark on the exciting journey of homeownership.