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If you’ve never applied for a mortgage before, it can feel like you’re trying to complete a jigsaw puzzle without knowing the final image. Even with the pieces all gathered, it’s hard to know what to look for without a deeper understanding of where to position things.
Many first-time homebuyers are unsure what lenders look for during mortgage approval, what documents are needed, and how their credit health impacts the process. The good news is that mortgage approval is not random.
Lenders review several key factors when determining your mortgage approval, including your income, assets, credit history, and debt-to-income ratio.
Your income and available assets play a large role in mortgage approval. Lenders want to see not only that you earn enough money to afford the loan, but also that your income is stable, well documented, and likely to continue.
In addition to reviewing pay stubs and W-2s, underwriting may also examine your bank statements, retirement accounts, and other assets to confirm you have the funds necessary for your down payment, closing costs, and cash reserves before closing.
The goal is to confirm that you have the funds necessary to comfortably manage your upfront mortgage costs and monthly payments over time.
Your credit score and credit history are important because they help lenders evaluate how you manage debt over time. Your credit profile may affect your loan eligibility, interest rate, down payment requirements, and what mortgage program you qualify for.
In addition to your credit score, lenders may also evaluate payment history, length of credit history, credit utilization, and recent credit activity. In general, a strong credit profile can help you qualify for more favorable loan terms.
Because a mortgage is a major financial commitment, lenders may also review recent credit activity to see whether you have taken on new debt or opened additional accounts before closing.
Debt-to-income, also known as DTI, measures how much of your gross monthly income is used for your recurring monthly debts. Mortgage lenders use this ratio to determine whether you can reasonably take on a mortgage payment in addition to your existing financial obligations.
Your monthly mortgage payment is not the only debt that affects your DTI. Other long-term loans, such as car payments, student loans, child support, personal loans, and credit card payments should also be in order before you apply for a mortgage.
An acceptable DTI will vary by loan program. In general, a lower ratio shows lenders that your monthly debt is manageable relative to your income.
When you’re applying for a mortgage, your lender and underwriting team will review documentation to verify your identity, income, assets, and source of funds.
The exact list can vary based on your loan type and employment situation, but common mortgage approval documents include:
Depending on your situation, underwriting may request additional paperwork to clarify your income, assets, and debts.
We know collecting and sending mortgage documents can be time-consuming. That’s why our mobile app makes it easier to upload paperwork, communicate with your Loan Originator and real estate agent, and track milestones throughout the loan process.
There are many benefits to reaching pre-approval before you begin seriously house hunting, even if you’ve already been pre-qualified. Whereas a pre-qualification is often an estimate, a pre-approval typically involves a more detailed review of your finances and credit. Because pre-approval gives you a clearer picture of how much you may be able to borrow, it can help you shop with confidence and may strengthen your offer when you find a home.
Our HomeXpress program helps eligible borrowers move from pre-qualification to pre-approval more efficiently through a more complete financial review.
Applying for a mortgage involves more than filling out an application. From document collection to underwriting review, each step plays a role in the loan approval process.
When you work with a Loan Originator from Homestead Funding, you have access to guidance, milestone updates, and digital tools designed to help you stay organized throughout your home financing journey. Whether you use Homestead Moves or get milestone updates directly from your Loan Originator, our goal is to make the mortgage process easier to navigate.
Ready to work with a lender who believes in your home financing success? Reach out to us to get started!
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.
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