Understanding what a lender needs in order to justify approval of a mortgage can be very helpful if you decide to purchase a home. The lender is looking mainly at five factors in evaluating your qualification for a home loan.
- Cash or Capital Assets – The funds you have available for the down payment and the financial resources available after closing
- Capacity – The continuing income for paying your monthly housing expenses and obligations
- Credit – Your ability to manage debt and motivation to repay the mortgage
- Collateral – Basically the house you are purchasing, which is the security for the loan (from the lenders perspective)
- Characteristics – Other factors related to the transaction that could impact the risk of your loan
The first two factors involve your income: your yearly income and your monthly income. In deciding how well you can meet your monthly obligations, it is helpfull to make a distinction between periodic or onetime income (such as bonus or inheritance) and the steady money you count on each month for paying your bills.
The lender will ask questions such as those listed below and wil most likely ask to see supporting income.
What Do You Earn?
- Bring your most recent pay stubs
- Two years of W-2 statements
- Two years of federal tax returns
What Is Your Existing Debt?
- Bring loan statements and account numbers
What Potential Problems Could Keep You From Repaying The Mortgage?
- Bring a copy of your credit report, if you have one. The lender will order one anyway, but you want to see it before the lender, if possible, to clear up any problems.