Components of the Mortgage Application

Collateral:

The reason that mortgage money is the lowest cost of financing available to you is that it is secured by your home.

The first thing a lender is going to do is to have the house appraised. They need to confirm that the price you agreed upon for the house is no higher than its market value.

The lender is interested in the value being high enough not only to cover the amount of the mortgage but the full purchase price. Their decision to lend you the money will be partially based on the amount of your cash committed to the purchase.

Income:

Your ability to make the mortgage payment is a major consideration to both you and the lender.

In calculating your income the underwriter will be looking for:

1. Self-employed? Receive any form of commissions or bonuses? Work regular overtime? If so, a 2-year history of this income will be required.

2. Salaried employees will need to demonstrate a 2-year work history.

3. Any installment debt will be added to your housing expenses to make sure you can afford the purchase.

 Credit:

In addition to your ability to pay, the lender will look at your willingness to pay.

A credit report will be done on you and the underwriter will be looking for:

1. The number of credit items that appear.

2. The number and frequency of late payments (if any).

3. The number of inquiries on your report.

4. Your credit scores.

5. Non-traditional credit reports, if you are not a user of credit.  

Assets:

Where is the downpayment and closing costs coming from?  How much money will you have left after closing?

The underwriter will be looking for:

1. Your total amount of cash on hand.

2. Your saving pattern leading up to the application and through the closing.

3. How much will be left after you move into your new home.