How Mortgages Work
A Mortgage loan can be quite confusing for anyone looking at trying to buy a house.With all the information about getting a mortgage loan out there this article will try to make it easier to understand.Before you can even qualify for a mortgage or even a loan you have a different factor you have to look at. It is known as your debt to income ratio.
The banks first look at your income to debt ratio before you can even qualify for a mortgage loan.When approving a mortgage customers have to have a debt to income ratio of 28/36 at most.What the first number means is that 28 percent of your gross income per month can go towards housing.For the second number, being the 36, means that only 36 percent of your gross monthly income can go towards your total monthly debt.Your total monthly debt consists of any kind of long term loan like a student loan, car loan and credit cards.Generally speaking most mortgage loan lenders use the lesser of the two numbers.If your debt to income ratio is higher than 28/36 they may require a different type of loan or more of a down payment.
After looking at your debt to income ratio the next important thing they do for getting a mortgage loan is a background check on your credit report.Your credit report is the most important factor of getting a mortgage loan, unless you have a huge portion of the money up front.In general mortgage loan companies want to see on time payments on your report.They usually look at the last two years of activity of your credit report.If you have any payments that were not paid on time they will especially keep that in mind.
While looking at stability of your particular situation lenders want to see your last two years of employment.It will be very beneficial to you if you have been at a job for more than two years.However, if you have not been they look to see if you have been at least in the same field of work.Finally if you have any other income that you have earned over the last two years like part time work, bonuses, or self employment they will take that into account as well.
When you go get a mortgage loan you want to bring several papers with you.The most important papers are your W2 forms and a recent paycheck stub to show you still are working.The lenders also want to have proof of any kind of money you have in stocks, bonds and any other accounts you have.By bringing all these items and being fully prepared of what to expect it will help you have a better chance of succeeding in getting a mortgage loan.