Before the housing crisis of 2008, banks were seemingly giving mortgage loans to anyone who applied. Since the crash of 2008 however, the requirements to get a mortgage have become much more stringent and black and white. Though the specifics of each area may ebb and flow some with the state of the economy, by and large, the requirements remain pretty much the same.

The key areas lenders will look at when deciding on whether to give you a mortgage loan are the following:

Your Credit Score
Your Recent Employment History
Your Overall Income
Your Debt to Income Ratio
And The Down Payment

Your Credit Score

Your credit score is a 3 digit number given to you by the 3 big credit bureaus; Equifax, Experian, and TransUnion. It ranges from 800 to 300 and represents your credit risk to potential lenders. In other words the higher your score the more likely you are to pay your bills and the less of a risk you are to lenders. The lower your score, the less likely you are to pay your future bills and the higher risk you are.

This number is based on your past payment history (whether you were late or on time, how much you still owe etc) to creditors who have reported your history to one or all of these 3 credit bureaus. Obviously the higher your score the better it looks to the potential mortgage lender.

If you don’t know your credit score, click on the link below and the very quick step by step article will help you ascertain your credit score. https://www.moneyunder30.com/credit-score-estimato

Your Recent Employment History

Lenders also take a look at your employment history. What they are wanting to see is if you have long periods with the same employer, or do you seem to jump from job to job without staying at one place very long. If so, are there gaps between jobs where there appears you have no income? What they are wanting to see is stability,

Ideally, they want to see someone who has a long term career. Someone who has been with the same company for many years and has a solid profession. What they don’t want to see is someone who jumps from job to job with no clear profession and has gaps between jobs with what appears to be no income.

Your Overall Income

This should be considered separate from your employment history for the simple fact that even if you have a low credit score and a not so solid employment history if you (somehow) have a very high income and can prove it, you may still very likely be able to get a mortgage. That would depend on the individual lender but the bottom line is if you have a very high income and have had it for a long period of time, that makes you less of a risk to loan to you and you could still get a mortgage even if the other issues are not so great.

Your Debt to Income Ratio

Your debt to income ratio is figured on a monthly basis and it compares how much your total payments are for things like rent, car payment, credit card bills, and other debt to your total monthly income. For a quick, easy way to figure out your debt-to-income ratio, just click on the link below and just plug your numbers into the simple tutorial and it will calculate your debt-to-income ratio for you.

https://www.wellsfargo.com/goals-credit/debt-to-income-calculator/

Obviously, the less debt you have in comparison to your income, the better you look to potential lenders in this area. This ratio is expressed in a percentage and is created by dividing your gross monthly debt by your monthly gross income. Generally speaking, the lower that number is, the better your financial health and the less of a risk you are to lenders. In most cases, lenders like to see less than 36%, with less than 28% being taken up by a mortgage payment.

If your number is too high and you have the capability if you can pay off some things like credit cards, get lower insurance, pay off the car loan, and other issues related directly to your debt, you could lower your score pretty quickly.

That’s why it would be a good idea to use the calculator link above to see where you stand right now. That way, if your debt to income ratio is, in fact too high, you can make positive changes now before you go to present yourself to a potential lender.

The Down Payment

When it comes to the down payment, the more you can put down the better. The least amount most lenders will accept is 3%, but that is only on very special loans that have other important requirements.

Twenty percent is a more accepted norm that most commercial lenders want to see. If you're unsure how much you will need for a particular mortgage, just click on the link below and plug in the numbers required, and it will figure out how much the down payment would be in dollars and cents at any percentage you plug-in.

https://www.calculator.net/down-payment-calculator.html

It would be a good idea to use the calculator at the link above because if you don’t have enough cash available to make an acceptable down payment, you can then do one of two things; look to friends and family for help in raising the money required for the down payment or perhaps look for a less expensive house that would not require so much out of pocket cash to still meet the minimum requirement for the down payment. Again, it’s best to find out this information BEFORE you go to a potential lender and banking institution because the more of these factors you can have yourself properly aligned with, the more likely you will get the mortgage loan you are looking for.

Take note that part of this process is the information you give to the mortgage broker or bank representative will be sent to what is called underwriting. Underwriting is much like an investigative team that will take one look at what you’ve written on the application and then pull up as much information as they can about you from credit bureaus and other sources and then begin a process of asking you for documents to back up or prove that what you have claimed on the application is true.

In many cases, some of their requested documentation may seem redundant and honestly even silly at times. I once had to produce a letter signed by my accountant stating that he was my accountant and that I made the money stated on my IRS forms from which I paid taxes. The underlying concern is that I had forged my IRS documents. However, if that was true (which it wasn’t) why wouldn’t I just forge the letter from my accountant? It would have been much easier to forge a simple letter from my accountant than an entire IRS document so if I had indeed gone to the trouble to forge the IRS documents (which I did not) why on earth would I not then just forge the accountant letter as well? None of this made any logical sense to me but they would not give me a mortgage loan without that accountant letter.

My point is, prepare yourself in advance for what may seem like some odd requests from the lender and be patient. In most cases, the requests do NOT indicate a lack of belief in your stated answer on the application, they are often just necessary documentation which will be put in the file that the individual underwriter is required to cover his behind should the file get audited in the future.

In many cases, mortgage loans are sold off to other third-party carriers, and before that happens, the potential buyer may ask for an audit of the records of the loans they are preparing to buy. Having certain documentation in those files allows that audit to go more smoothly and thus the sale to happen more quickly. So don’t take any of that process personally because in most cases it’s not about you at all.

However, by taking the time to use the tools I’ve given you here in the links above and making sure each factor of getting a mortgage is in the proper range, you will ‘stack the deck’ in your favor when it comes to getting the mortgage loan you desire and finally having the home of your dreams. It may end up taking a little longer than you originally thought but the entire process will go much more smoothly if you are confident that you have all the requirements needed to get the mortgage loan for the home you want and deserve.

Author Bio

Will Foster | First State Bank Mortgage Senior Loan Officer

I became a mortgage lender in 2010, right after the "bubble" popped, and the mortgage industry underwent an incredible transformation. This has given me a unique advantage in the fact that I have never known anything other than the highly-regulated world we now live in.

Throughout my years of experience, my primary goal has been to keep up with the constant changes in the industry so I can help my clients investigate all of their options and maximize savings. In addition, because I specialize in Conventional, FHA, USDA, Jumbo, portfolio, and VA refinances and purchases, I can help a wider variety of individuals, families, and investors identify and secure the right loan to best suit their future interests.

The mortgage process can be a little confusing and even overwhelming these days with all of the regulations. I guide my clients through the process from start to finish, and I try and make it as painless and hassle-free as possible.

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