How Do Mortgage Lenders Determine The Required Income?
A mortgage lender is going to have a very conservative idea of just what you as the borrower are able to afford.
They want to make sure they’re going to get the money that you’ve borrowed from them, after all. And that means they’re going to look at how much money you already have going out and what you can continue to afford to have going out.
First, they look at your gross income.
If your gross income is two to two and a half times what you’re looking for in a mortgage then you should be able to afford it. That means lenders consider that you can pay for a $160,000 to $200,000 home on a yearly gross salary of $80,000.
They want to know the projected monthly mortgage payment and then they want to know the current monthly payments that you have on your other debts like credit cards and legal obligations. If you then pay less than 40% of your gross income you should be able to get approved.
How To Increase Mortgage Approval Chances?
When you have to apply for that mortgage to get the home of your dreams it can be a bit unnerving. You’re worried that you’re not going to get it even when you’re confident in your financial abilities. So, what do you do?
Well, the lucky thing is there are a few things that you can do to improve your odds of getting approved.
Increase Your Credit Score
This is probably the number one thing that you can do but it’s going to take time and a bit of effort.
You’ll need a score that’s at least 650 for a traditional mortgage, so make sure you’re working on getting it up there.
Increase Your Down Payment
If you have the ability to pay even more down then your mortgage amount is going to be lower and the lender is going to be happier about giving you the rest of the money you need.
That’s because the property is actually worth more than what they’re giving you, giving them better odds of getting their money back if they have to foreclose and sell the property. Another great thing – you'll be able to get rid of your PMI.
Understand Credit Utilization
Pay attention to how much credit you have available compared to how much credit you’re actually using.
You want to make sure that the debt you have is far lower than what you have available. Your lender is going to look at this.
Decrease the Debt-to-Income Ratio
How much money do you have to pay out each month compared to the amount you have coming in?
You want to look at this amount as a percentage and keep in mind that your lender wants you to easily be able to make all of your payments.