Lender, banks, and other loan sources take into consideration a combination of items when determining whether or not to loan you money:
- Current income
- Length of time at your current job
- Debt-to-income ratio
- Past rent or mortgage payment history
- Your credit report
- Tax returns
- Down payment amount
- Months of reserve money
Your income level, debt and credit information will be used to pre-qualify you for an amount the lender thinks you can afford. A pre-approval takes into account your credit report, the debt-to-income ration and a more in-depth analysis of your financial situation. Once pre-approved, you will receive a pre-approval letter that can be provided to a seller with an offer.
A pre-approval can provide a more definitive price range for your search and is best completed as a first step.
There are benefits to obtaining a mortgage on your home. These benefits can help you decide if it is the right time for you to buy, and provide other values such as the mortgage interest deduction to offset income against your taxes or making mortgage payments as an investment into building your wealth.
Once you have identified a property for purchase, and have an accepted offer, the lender will begin processing your loan. They will take into account other factors impacting an approval:
- The preliminary title report
- Any homeowners association dues
- An appraisal report
- Homeowner insurance payments
- Property taxes
The combination of your financial profile and the property gives the lender a complete picture of the risks and benefits of providing you with the loan. Once all these items are reviewed and approved through the escrow process you will be in the home stretch for closing on your new home.