The Main Things that Mortgage Lenders look For

As you may already know, mortgage lenders are looking for a very specific type of borrower, one that has proven to be responsible with their finances and can comfortably endure the financial burden of a mortgage. And, this certainly holds true in the Orlando mortgage industry. If you meet this requirement, the mortgage process ought to be smooth and progress seamlessly. Nevertheless, there are certain factors which are routinely analyzed in the lending process. And, it is your right, as a consumer, to be informed as to the main things mortgage lenders look for in a mortgage applicant. Below, you'll find information regarding the description of an ideal borrower and a detailed insight into the mortgage process.

Financial Capacity

When considering your financial capacity, factors such as your job history and monthly income are examined. You must also meet two debt-to-income ratios. The first debt-to-income ratio is considered a front-end ratio. This ratio consists of evaluating the total costs associated with your new home. This includes monthly principal and interest payments, PMI (if applicable), property taxes, HOA fees (if applicable) and homeowner's insurance. The sum of all costs is then compared against your monthly income. Therefore, a borrower with a gross monthly income of $5,000, by lender standards, would be able to afford a home with a total cost of $1,650 when qualifying for a conventional loan or $1,550 if qualifying for an FHA loan. Conventional loans require a maximum 33% front-end ratio, while FHA loans requires 31%.

The second, and most important, debt-to-income ratio is your back-end ratio. This is the ratio between all of your debt, including your home payments, and your monthly income. A 36% to 39% back-end ratio is considered ideal by most lenders. Therefore, if your gross monthly income is $5,000, your monthly debt payments should be under $1,950. For example's sake, a monthly home payment of $1,650, a student loan payment of $75, a car loan payment of $150 and a $75 credit card payment would amount to $1,950, or 39% of a $5,000 monthly income. Of course, other factors, such as cash reserves, collateral and immaculate credit would positively impact these figures and possibly allow for a higher ratio.

If your debt is currently higher than the recommended ratio, you may choose to purchase a home of a lesser price, place a higher down payment on the home, therefore decreasing the amount of the loan, or simply work towards paying off your debt in order to comfortably fit within the desired back-end ratio.

Collateral & Cash Reserves

Your current assets will be evaluated in order to determine the assets which can act as collateral for the loan. In short, pledging a possession as collateral ensures that the lender receives a portion, or the entire sum, of a loan in the event that you stop making payments on your mortgage. Many borrowers fear losing their possessions by pledging them as collateral. However, the assets remain under your possession if your mortgage remains in good standing. Offering collateral simply makes your loan request more attractive to lenders as it presents less risk for the bank. Possessions such as cars and real estate are most often used as collateral.

If you have cash reserves, it's an added benefit to your status as a potential borrower. By proving that you have savings set aside for a rainy day, you're proving that you're fiscally responsible and able to successfully manage your household finances. Clearly, it's also beneficial to have cash reserves on hand in the case of an unforeseen emergency, such as being laid off, as you'll still be able to make your mortgage payments. As a result, this places you at an advantage throughout the mortgage process.

When seeking an Orlando mortgage, keep these factors in consideration. To some borrowers, the mortgage process and its qualifications may seem too strict. However, these requirements are necessary to protect you, the consumer. Statistically, applicants which meet these requirements are less likely to default on their mortgage payments. And in turn, less likely to lose their home to foreclosure. Which is the least desired scenario for both the borrower and lender.