What can affect your ability to get a mortgage?

One key step in purchasing a home is qualifying for a mortgage, or the loan used to buy property. Although the application process can be overwhelming, it's a lot easier if you know what to expect.

1. Credit Score: Various financial factors are included in your credit score, such as student and automotive loans, credit cards and lines of credit. Some credit histories also include cell phone bills and rental property agreements. Lenders view applicants with higher credit scores as lower-risk individuals, so they're able to qualify for loans more easily. Before you submit an application, reviewing your credit score and taking a closer look at your history is helpful. If you spot any discrepancies, you can work with the major credit reporting bureaus to remove errors or inaccuracies and bump up your score.
2. Down Payment: A down payment is a sum of money paid to the seller at the time of the purchase. The buyer pays the sum, and the amount they can pay plays a role in the overall approval process and the total monthly payment. To put it simply, a higher down payment results in a lower amount borrowed from the lender. The down payment also determines what type of loan a borrower can qualify for, as some loan types require a minimum percentage to be paid down. With DECU’s Private Mortgage Insurance (PMI) in-house mortgage only 10% is required for the down payment as compared to a conventional loan which requires 20%.
3. Employment History: Your employment history plays a major role in whether or not you can qualify for a mortgage loan. Lenders use this as a measure of risk since a steady source of income indicates the applicant's ability to pay back the loan. In contrast, an individual with a spotty employment history who changes jobs frequently often doesn't look as stable to a lender.
4. Debt-to-income (DTI) ratio: Before a lender approves a mortgage loan, they assess the applicant's debt-to-income ratio. This involves an assessment of how much money you bring in each month and any outstanding debts you're responsible for at the time. This formula provides insights into the monthly mortgage payment you would be able to realistically afford on top of your existing debt. The calculation may include various types of debt, such as:
   1. Auto loans
   2. Credit card debt
   3. Student loans
   4. Lines of credit
   5. Medical or health care debt
   6. Mortgage loans
5. Home Location: The state and even the city you're shopping in can affect your interest rates and qualification status. Rural areas may qualify for different loan types, while homes in urban areas could have different requirements.