One of the most significant financial decisions in your life is purchasing a home, and most people require financing to do so. Applying for a mortgage is a process that can be complicated, but understanding what makes you get approved for a mortgage can be helpful. Here are the critical factors that lenders consider before approving you for a mortgage:
Debt-to-income ratio: The majority of lenders require your debt-to-income ratio to be at least 36 percent or less. This ratio is calculated by dividing your monthly debt repayments by your gross monthly income. A lower debt-to-income ratio makes you a more attractive prospect as a borrower.
Likelihood of repayment: Your credit history and payment history score provide lenders with an indication of your potential to pay back loans in the near future. A positive credit history with timely payments and a high credit score can make it more likely that you will get approved for a mortgage.
The value of your home: Lenders also consider the value of your home to ensure that it is worth the amount you intend to borrow. This is determined by an independent appraiser, and lenders may deny your application if the appraised value is significantly lower than the purchase price.
Remember, the ideal debt-to-income ratio for you is the one you are able to comfortably manage. It’s essential to consider all these factors before applying for a mortgage to improve your chances of being approved for the loan.