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Have you ever asked….

• What criteria does a lender use to qualify mortgage applicants
• How much income do I need to buy a house
• What’s the maximum mortgage amount I could be approved for
• What should I focus on to improve mortgage qualification
• What is the best mortgage rate I can get 
• What will my mortgage payments be?

Let’s answer each of these questions now…..

What criteria does a lender use for mortgage qualification ?

• Risk: Lenders look at how each of your revenue and debt details affect each other in order to evaluate your capacity ability to handle a mortgage.
• Income/Debt: Your income level is important, but lenders look at debt vs income together to assess if you make all your debt payments.
• Net Worth: Do you have savings? A car? Other semi-liquid properties/assets? Do you have the financial means to fix a major unexpected repair? A lender needs to know that you can take care of your property.
• Debt-to-income Ratio (DTI): This is a critical ratio that a lender will calculate to assess your financial ability to handle a mortgage.
• Credit score: Your credit score summarizes your credit-worthiness. A high credit score will give you access to the lowest mortgage rates. Regardless of how much income you make, a low credit score will prohibit mortgage qualification.

How much income do I need to buy a house ?

• It’s not just your income level but rather your monthly debt payments vs your income. Lenders look at debt vs income together to assess if you can handle all your debt payments.
• Type of income: Full-time employment is different from contract work. Permanent salaries are different from self-employed income. All forms of income are evaluated by lenders, but your type of income will dictate what documentation is required.
• Employability: If you’ve only been at your current employer for less that 3 years you will need more documentation to show employability.
• Self-Employed income: This type of income is the most challenging for borrowers. Specific documentation is required to help a bank assess a) how accurate is the reported income b) can the borrower continue to generate this income.
• Self-Employed NET income: Entrepreneurs write use business expenses to lower offset revenue and taxes. Lenders will only consider your after-tax net income, not gross. So if you generated $200k a year, but wrote off 75% in expenses, the lender will only assess $50k of income.

What’s the maximum mortgage amount I could be approved for ?

• The debt-to-income ratio (DTI) is a critical ratio Lenders use to assess your ability to handle mortgage payments. The calculation divides all monthly debt payments by total monthly income. Scores above 44% are problematic as your debt payments represent a large portion of your income.
• The loan-to-value (LTV) is another important ratio. This metric looks at the value of the property versus the mortgage amount. A $1MM house with a mortgage of $800k = 80% LTV. The maximum LTV is 95% (requiring 5% down payment)
• Mortgage Insurance: Any mortgage that has an LTV higher than 80% will require mandatory mortgage insurance. This insurance premium is added to your mortgage payments.
  
• Jason Wodlinger Mortgages can estimate your maximum mortgage amount with just a few simple questions

Would you like to read more tips like….

• What is the best mortgage rate I can get
• What will your mortgage payments be?
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• Can a first time home buyer actually be approved for a mortgage

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