Buying a new home is a huge event in life, and it typically requires getting a home loan. If you need a home loan, you will need to work on getting that before you shop for a new home. Getting a home loan is simple for some people, but it is more challenging for others, as qualifying depends on many factors. If you wonder about the factors that matter when applying for a home loan, you should understand the top three.
The Down Payment
The first factor is your down payment. When you apply for a loan, the lender will ask you how much you have for your down payment. If you have a lot of money to put down, you will likely have more options with home loans. You might also qualify easier for a home loan. Putting money down on a house purchase reduces the risk a lender has when issuing a loan. If you put a lot of money down, you will probably work hard to make the payments on the mortgage. As a result, the lender has less risk and might be more willing to give you a loan.
Your Credit Score
Your credit score also matters to lenders, as it also affects their risk level. People with high credit scores have a track record of creditworthiness. As a result, they can get approved for mortgage loans more easily. When you have a lower score, your lender assumes more risk. As a result, your lender might be less willing to give you a loan. Your credit tells a lot about your ability to repay the money you borrow. If you want to improve your chances of getting approved, make sure you work on your credit score.
Your Debt-to-Income Ratio
The other factor that lenders take seriously is your debt-to-income (DTI) ratio. A DTI ratio compares a person's income to their monthly debt payments. People with high DTI ratios might struggle to pay their mortgage payments more so than people with low DTI ratios. You can talk to a lender to learn more about DTI ratios if you feel that you need to work on yours before applying.
While lenders factor in other details about an applicant's life, these three factors matter more than anything else. If you have questions about home loan purchases, talk to a lender of your choice to learn more about the process and eligibility requirements.