Homebuyers start their journey to homeownership by completing a home loan application. The approval process requires the lender to complete a variety of assessments and verifying all information provided by the applicant. Reviewing what the lenders verify for a mortgage helps the borrower what to expect.
The Borrower’s Employment
The lender starts by verifying the borrower’s employment. The process requires the lender to contact the employer directly and get a verification form completed by the employer. The lender needs to know when the applicant started working for their current employer and whether the applicant is employed full- or part-time. Most lenders want a borrower who has a stable work history of at least two years with their current employer.
The Borrower’s Annual Income
The borrower’s annual income must be verified, too. The employer provides a form that shows the borrower’s current wages and how many hours the borrower works each pay period. The borrower may be required to present tax returns for the previous two years to show a stable income. If the borrower is self-employed, the lender may require several years of tax returns and some financial records for the business. All sources of income must be presented to the lender for a complete assessment. If the borrower receives alimony or child support, it should be reported as income to the lender.
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The Borrower’s Credit History and Credit Scores
The borrower’s credit history and credit scores are verified by the lender to determine if the borrower is creditworthy. Lenders review all three credit scores and review any creditors that the borrower has used as a credit reference for their home loan. The accounts must be in great standing, and the borrower must have excellent credit scores to get the best home loans and interest rates. However, some home loans will provide approval for borrowers with credit scores as low as 620, but the borrower will pay more down to secure the home loan.
Their Total Volume of Debt for the Income-to-Debt Ratio Assessment
The borrower’s total volume of debt is verified to make a more conclusive credit assessment and establish affordability. The borrower’s income-to-debt ratio is evaluated to determine if the borrower has enough income to pay for the mortgage and their current monthly responsibilities. Typically, the income-to-debt ratio must be less than 43.
The borrower’s review the credit history for new debts and lines of credit, too. If the borrower has overextended themselves with a new line of credit, the lender might not approve the applicant for a home loan. A new line of credit could increase their income-to-debt ratio and make the loan unaffordable.
Homebuyers submit an application to a lender when they are ready to buy a home. Lenders must complete assessments to determine if the borrower meets all requirements for the preferred home loan. The verification process requires the lender to obtain documentation that substantiates all information presented in the application. Homebuyers who want to learn more about buying a home and need more information can review Dustin Dimisa’s facebook now.
