When you apply for a loan, it will help you a lot to know about the things that banks look for while approving a home loan. Before giving a loan, banks look for your credibility and affordability to pay back according to the terms of your mortgage loan. While doing this, they consider several factors to assess your financial condition. So, you must have a good credit score to get a loan, and for that, you have to manage your current debts properly. But it is not that you will not get a loan while you are in debt provided you meet their requirements and demand.
Good Credit Score
If you have a credit score within the range of 300 to 850, you stand a good chance to get approval as banks can judge your previous credit history. Low credit score will mean risk for the bank to grant the loan as you may become defaulter soon. You credit score is calculated by using different metrics, and the most important are your payment history. If you have a history of timely payments, you will have a high credit score. Utilization of credit available is also important as it will reflect your liability for repayment. The longer is your credit history of paying back loans; the higher is your score.
Influence Of Income
It is not necessary that you will need a high income to apply for a home loan but the monthly housing cost is crucial. It will influence the amount that you are left with to repay and hence the loan amount for which you have applied. Lenders, therefore, consider the total monthly income that you earn from all the sources including bonuses and incomes from interests and dividends. Lenders do not prefer applications where the monthly payment for mortgage including property taxes and insurance altogether is more than one-third of your gross monthly income.
Your Currents Obligations
Lenders also consider all your current loan obligations including student loans and car loans while assessing your affordability. You need not worry if you have such loans against your name provided you have a very clear and sound credit history. Apart from it, banks also consider how much you are left with after paying off all your debts. Your percentage of down payment will also affect your loan eligibility. The more you can pay as down payment, more is the chance of approval. You can visit here to learn more about down payment and the way it affects your loan eligibility.
Prepare For Approval
If you have all the above factors in your favor, you can approach to the bank well prepared. If you do not have favorable conditions, then you must wait till the time you can have a good credit score by paying your dues, sufficient income to have much on hand to repay your mortgage commitments and a considerable amount of down payment available. Having your finances well under control is, therefore, necessary to get a home loan and is mutually beneficial.