Buying a home is exciting, but important factors could be the barrier between walking into your new home and signing another lease on your apartment. A home loan is a perfect example. When lenders are determining your home loan eligibility, they will look at a variety of factors that go toward your information such as your bank account and credit score.
Whether you’re applying for a conventional home loan or a different type of home loan, you can be the first to see if you’re eligible for a home loan or not.
If you see yourself living in a house for the next few years, read on and find out how to determine if you’re eligible for a home loan before a lender does.
Do You Already Have Loans?
This is an important fact that all lenders will look for: are you already paying off a loan?
If you are, this could easily lead you to the doorstep to debt rather than the doorstep to your new home.
Having existing loans doesn’t mean the lender will disqualify you from home loan eligibility. But it will minimize the amount of your loan. It’s up to you to determine if this a smart decision for you or not.
Whether you’re paying off a car loan or any other type of loan, hold off on that new home until your maturity date is over.
Your Employment Status
Assuming you’re a smart person and are only buying a house while employed, a lender will look at your career and your salary.
But even more than that, a lender will look at your tax filing and your position at your place of work.
In addition to these factors, a lender will look at how often you get paid and other information such as if you receive an annual salary or an hourly wage.
Looking at your salary and your tax filing is a great way for a lender to determine your home loan eligibility. If a lender doesn’t believe you have enough or a trustworthy income, you will be disqualified from taking out a loan.
Your Bank Account Information and Spending Habits
A lender will ask for copies of your bank statements, usually six months to a year previous to the day you’re inquiring about home loan eligibility.
They do this to view your spending habits and if you truly can afford to pay off the home loan.
In addition to spending, lenders will look at any other deposits other than from your employer and how often and how much money you withdrawal.
If a lender believes your spending habits are too high or your savings are low, you will be disqualified from receiving a home loan.
Bill Payment History
This is a little different from your spending habits. This information tells a lender how much you’re paying in bills each month and if you pay your bills in full or pay them late.
If you have a habit of not paying the full amount of your bills or paying them late, you could be disqualified from home loan eligibility.
401k and IRA
A lender also looks to see if you’re saving for retirement or if you invest in stocks and bonds. They don’t necessarily look in those accounts, rather request proof that you have them.
Whether your retirement savings and investment is through an employer or is individually owned, it is a very good sign that tells the lender you’re saving and are in a good financial situation.
A lender wants to make sure you have a good financial discipline to determine your home loan eligibility.
By proving you’re saving for retirement and have an additional source of income, a lender will be more comfortable giving you the home loan.
Your Credit Score
Of course, a lender checks your credit score. They will also check how many credits card you have open and how often you use them.
They’re mainly looking to see if they’re paid off in full each month or just about fully paid every month.
Like your bank account, this helps a lender view your spending habits. But they will also see this information as it reflects on your credit score.
Just because you have a low credit score doesn’t mean you’ll be disqualified from receiving a home loan. Actually, there are loans available specifically for those with low credit scores.
But your credit score does reflect how much you can receive on your home loan.
The Home’s Mortgage and Monthly Payments
A lender doesn’t only look at you. They’re looking at the house.
Say you already have a house picked up and put in your offer. Now, you want to get the loan settled. Give the lender all of the information of your home: the cost, your offer, your expected monthly payments, etc.
How a lender calculates your loan is by looking at your income and combining it with the cost of the house.
If they believe the monthly costs of the home will be too much with your income (even with a loan) then you will be disqualified.
Say you don’t have a home picked out yet, or you have a few homes in mind but haven’t placed an offer yet. But, you have a general idea of your budget.
Give this information to your lender. They will check if you’re eligible for a home loan of your budget.
A lender can also give additional advice, such as if you qualify for a loan on a more expensive home or if you should decrease your budget.
What Does Your Home Loan Eligibility Look Like?
Owning a home sounds luxurious, but this can only happen if you have the money. To assist with mortgage payments, you can take out a loan. But you should only take a loan if you’re eligible to pay it off.
Knowing your home loan eligibility before a lender can tell you if now is a good time to buy a home. You can easily do this by checking important financial information such as your credit score and your spending habits.
If you believe you’re eligible for a home loan, apply for one now.