There are many factors to consider when looking for a mortgage, such as interest rates, closing costs, and so on. However, some things are far more critical than the rest, and they will seriously affect what kind of mortgage you should pick. These things will determine whether you qualify for a specific mortgage.
If you are interested in learning more, keep on reading. In this article, we will talk about the factors that affect your ability to qualify for a mortgage.
Your debt-to-income ratio
A debt-to-income ratio is significant to lenders because it helps them know the likelihood of you being able to pay the monthly payments. The number combines all your monthly debts with the new debt you may incur when paying off the mortgage. That number is then divided by your monthly income. The higher the number, the lower your chances of being eligible for a mortgage. In fact, a higher debt to income ratio is the most common reason people are unable to qualify for certain mortgages.
Your loan to value ratio
A loan to value ratio measures the equity in a home. The number represents a percentage of how much you still need to pay to own your home fully. This means that the higher the number, the more you still need to pay, which means the more you will need to borrow from your lender.
This can affect the choices of mortgages you have access to, mostly because lenders have a limit to how much they can lend. If the number goes higher than what they can offer, you will have to make a down payment to cover the home with the mortgage. You will also need to get mortgage insurance, which can be a little pricey.
On the other hand, if what you owe is much less than their limit, then you may be able to opt for the mortgage without making any down payments or getting insurance.
Your credit score
Finally, a credit score is a number between 300 to 850 that is based on an individual’s history of borrowing money. The numbers will vary depending on what credit bureaus the lender uses. Regardless, you will have to undergo a soft and hard credit check.
A soft credit check is a quick check generally done early during the mortgage process to help you understand whether your credit looks good or bad, while a hard check is done right before submitting an application for the final number.
That said, a good credit score means you have a good borrowing history and stand a much higher chance of having your application approved. On the other hand, a bad credit score means you will be limited in available choices. Generally, in this case, you will have to improve your score by borrowing from various places and paying those loans on time.
These three factors are some of the most significant considerations your lenders will make when determining whether you are eligible for a specific mortgage. That said, if you want to find out how well you are doing in all of these three numbers, it is vital that you work with a professional to figure those out. That way, you can see which areas you can improve on so that you will not have to waste time on rejected applications.
JTS Co offers mortgage advisory services to help clients identify the best financing option to meet any requirements. If you are looking for a lifetime mortgage advisor in Mississippi, get your free consultation with us today!