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How mortgages are approved

There are several factors involved in the approval process of your mortgage application.

  • Income. When you're qualifying for a loan, lenders usually use your gross income (all the money you earn before taxes) to determine the monthly mortgage payment you can afford. Gross income may also include the average of overtime pay and commissions, and child support or alimony, if you wish to have them considered.

  • Monthly mortgage payment as a percentage of your income. In general, lenders require that your total monthly mortgage payment — principal, interest, property taxes, mortgage insurance, hazard insurance and any homeowner association dues - be no more than 28% to 33% of your monthly gross income.

  • Your total debt situation. You may have car loans, student loans, credit cards, child support, alimony or other monthly expenses. In general, lenders require that the total of all your monthly expenses (excluding basics like utilities and groceries) not exceed 38% of your gross monthly income.

  • Credit history. A satisfactory record of paying your bills on time is an important part of getting a home loan. If you've had credit difficulties within the past two years, a good explanation of any late or missing payments on your credit report will be taken into consideration.

  • Employment history. Lenders usually prefer to lend money to people whose incomes have grown steadily over the past several years and who have worked consistently in the same or related occupations. You will need to verify employment. If you're self-employed, work on commission or have been at your job less than two years, you may need to provide additional information about your work history.

  • Property appraisal. A professional appraisal is done to determine the value of the home. An appraisal is based on the home's condition and selling prices of comparable properties in the area and confirms that the property is worth the purchase price you're offering for the home.


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