Important Factors that Affect your Mortgage Preapproval in Syrcause, NY
Before you can own the home of your dreams, you have to get preapproved for a mortgage.
Mortgage preapproval is a necessary and crucial step toward your journey on becoming a homeowner. By obtaining it, you can prove to realtors that you are serious about purchasing a property, and are qualified to boot.
Mortgage preapproval also offers you other advantages. By proving to realtors that you are a serious and qualified buyer, getting preapproved for a mortgage allows you room to negotiate, and allows you to close faster on a property you might be interested in.
In order to obtain mortgage preapproval in Syracuse, you have to work with your lender to assess your financial situation. It is similar to the process of mortgage prequalification, but with one key difference.
When you go through mortgage preapproval in Syracuse, you are required to submit official documents that verify your finances and give loan officers a full idea of your income, credit score, and more. This requires you to submit income and bank statements, tax returns, W-2s, and other supporting documents.
This allows the loan officer to confirm your finances and offer you a more precise figure on your loan. It gives you an approved maximum amount from your lender that you can spend on purchasing a home. It also lets you know how much the mortgage payment will be for your maximum purchase price, and the mortgage rate for your first term.
Getting preapproved for a mortgage is a great way to confirm that you are ready to purchase your dream home. If your finances are in good shape, your credit score is looking good, and you yourself are ready to become a homeowner, then getting preapproved for a mortgage should be a breeze.
But before you jump into applying for a mortgage, keep in mind that there are a number of factors that can affect your chances of obtaining mortgage preapproval.
Important Factors that Affect your Mortgage Preapproval in Syracuse, NY
Debt-to-Income Ratio
The debt-to-income (DTI) ratio is a measure of all your monthly debts relative to your income per month. When measuring your DTI, a mortgage lender will sum up all your debts from your lines of credit, including car loans, student loans, credit cards, and more. The monthly mortgage payment you make if you take out a loan will also be added. These lines of credit will then be divided by the total sum of your monthly income to get a percentage.
While it depends per loan type, the rule of thumb is that borrowers must maintain a DTI ratio of 43% or lower of their total monthly income to qualify for a mortgage. If your DTI ratio is too high, you risk struggling to repay your loan on top of other debt payments you have to make.
A lower DTI ratio means you are more qualified for a competitive interest rate. A good way to lower your DTI is to pay off as much of your debt as possible before buying a home. This shows lenders that you are able to responsibly manage your debt and are capable of paying your bills on time.
Loan-to-Value (LTV) Ratio
Another factor that can affect how you get your mortgage preapproval is your loan-to-value (LTV) ratio. The LTV is calculated by dividing the total amount of the loan by the value of the property. You might need to have the property properly appraised to determine its value, since property value is not always exactly reflected in a seller’s asking price.
The LTV ratio is what affects your down payment on the property. A higher down payment means a lower loan amount, which means a lower LTV ratio. Putting down less than 20% on the down payment means you might have to pay for mortgage insurance, which protects lenders if you cannot repay your mortgage. It’s best to lower your LTV ratio as much as possible, either by paying more on the down payment or opting to purchase a more affordable property.
Credit History and Score
Your credit score and credit history not only affect your DTI ratio, but your eligibility for mortgage preapproval overall. A lender will ask to see your credit reports from any of the three main credit reporting firms: Equifax, Experian, or Transunion.
To determine how good you are at managing credit, lenders will look into your credit history to verify if you are able to pay off your debts on time, what types of credit lines you have open and how many there are, and how long you’ve had these credit accounts.
An important part of determining your credit score and history is credit utilization. Apart from a positive payment history, lenders must also analyze which of your available credit lines is actively used. It is highly recommended that you maintain a credit utilization rate of 30% or less. This shows lenders that you are capable of consistently paying off your bills and are able to manage your debt responsibly.
A lower credit utilization rate also boosts your overall credit score. Most lenders use the Fair Isaac Corporation (FICO) credit score model to determine your credit score.
Employment and Income History
A steady income and employment is essential to qualifying for mortgage preapproval. This is why lenders will require you to submit at least two years’ worth of your W-2 tax forms and your employer’s contact information. By assessing your employment and income history, lenders are verifying whether or not you can handle the added financial strain of a mortgage.
You must also provide information regarding your salary, to prove that you earn enough to afford a mortgage payment, other housing expenses, and the debts and bills you have already accrued. Bank statements must also be submitted to prove that you are financially equipped to pay off a down payment and closing costs. At least 60 days of statements are required from employees and possibly more if you are self-employed.
Getting preapproved for a mortgage is a huge advantage for any aspiring homeowner. If you’re wondering how to get preapproved for a mortgage in Syracuse, NY, we’d be happy to help you get started!