WHAT COUNTS TO A LENDER?

Your ability to repay a mortgage is governed by your income. How much of your total income (income before taxes) will be spent on the proposed loan? They will use any income that can be verified with at least a two year history. If full-time employment they use current income, all others are averaged for the last two years. Your monthly housing expense as a percentage of your monthly income is called the housing expense ratio. This includes the payment on principal, interest, property taxes, mortgage insurance and hazard insurance. Sometimes they may allow you to stretch this to 33%.

Steady employment in your occupation or consistent history of work in the same or related occupation is important. Generally two years in the same profession is needed.

Current debts and credit history. Debts include your house payment as well as payments on all loans, charge cards, child support, etc.. that you make each month. This percentage of debts to income is called the debt-to-income ratio. Some loan programs may allow you to spend up to 38% of your monthly income. A mortgage lender will look at your willingness to pay. Your willingness will be judged by your credit records for the last seven years.

Current savings and savings history. You must have the total down payment, closing costs and reserve funds verifiable in your own savings: The reserve funds must be equal to at least two months of your new total housing payment. Some loans may allow the closing costs to be a gift or paid for partially by the seller. You also must show a personal savings history. That is, how much money can you demonstrate you are able to save on a monthly basis and not have to touch for other living expenses. This will help determine your ability to handle a higher monthly housing payment. A minimum documented of four months of regular monthly savings may be required.