When applying for a mortgage loan, the biggest factor that lenders consider is one’s credit score. However, that is just the start. Before deciding whether to approve a mortgage loan or not, lenders like to review a full financial profile of the applicant. So, if you are looking to apply for a mortgage loan, you should be prepared to share everything in regards to your finances. It is best to make sure that you keep your debt levels in check because this is what will determine how much loan you get and at what interest rate. The following is what lenders will look at in your loan application:
Your debt level is what contributes to your credit report and that’s why it is vital to have good report prior to applying for a loan. When lenders are checking your credit report, they make a thorough analysis of your credit history to predict how likely you are to repay borrowed money. They look for the following in a credit history:
While not having a perfect credit score might not be a deal-breaker, having some blemishes on your credit report can affect your interest rate.
Income and expenses
Most borrowers think that by having a high income automatically qualifies them to get a loan at low interests. It is true that lenders will view a borrower with high income as a low risk, but still there is a lot more they need to look into before they can approve a loan. Mortgage lenders in Montreal will look into your fixed expenses to determine the debt-to-income ratio. If they find that you have a high income but you pay high fixed expenses, they are likely not to give you better rates. To apply for a loan with low interest rates, your debt-to-income ratio must be lower than 43%.
Lenders consider big loan amounts as a risk and they are more likely to charge high interest rates. If you want to pay low interest rates on your mortgage loan, you have to put down a large down payment. This way, lenders will consider you a low risk and be more generous with the interest rate. Also, if you have a low credit score but make a large down payment, this can help you negotiate with a lender for better interest rates. However, be careful not to clean out your bank account while seeking for a lower interest rate. It is wise to set aside some money in case of emergencies.
To keep your debt levels in check, you have to be disciplined enough to make wise choices when it comes to spending your money. This means not spending more than you earn. Before applying for a mortgage loan, calculate how much you are able to spend on monthly payments. Be realistic and go for a loan term that you will be comfortable with. A shorter loan term means you will make huge monthly payments at lower interest rates. Longer loan terms means minimal monthly payments but at high interest rates.
Whether you are currently earning a high income, a lender will still have to review your income from the past 2 years to measure income stability. If they find that you have a spotty job history or you have been unemployed in the past 24 months, they will not deny your loan application but the issuer will view that as a red flag. A lender may view you as unstable and you can end up with a loan with high interest rates.