How to Get a Mortgage
Five things a bank looks for when approving a home loan.
Each bank’s specific criteria for approving mortgage loan applications is a little different. However, there are several things that tend to be at the top of most banks’ priority lists.
Cadence Bank Senior Vice President and Mortgage Lending Manager Debbie Lambert shares the five most important things Cadence Bank looks for when reviewing mortgage applications.
1. Credit History
Lambert says this is usually the most important factor in whether or not a mortgage application is approved. “Nothing takes the place of good credit, so this is a top priority,” she says.
Banks evaluate borrowers’ credit histories by carefully examining their credit reports and credit scores. These are compiled by Equifax, Experian and TransUnion, which are the three major credit reporting bureaus in the U.S. The bank may obtain a credit report and credit score from one or all three of the credit reporting bureaus.
So, what credit score is needed to be approved for a mortgage loan? According to Lambert, the minimum credit score to obtain an FHA mortgage is 580.
If you’re concerned about this, you can improve your credit score by following a few best practices, like demonstrating a consistent and on-time debt payment history.
Lambert cautions against using a credit repair agency to try to improve your credit before applying for a mortgage. “This is a big mistake people sometimes make,” she says. “The repair agency is going to dispute your accounts, which is automatically going to disqualify you for a mortgage.”
2. Employment History
Making sure you have a stable employment history helps ensure that you’ll earn enough income in the future to meet your mortgage payment obligations. “We mainly want to see that you have worked steadily in the past, without big gaps between jobs,” Lambert says.
Some borrowers are concerned because they’ve changed jobs in recent years. However, Lambert says she’s less concerned about this than she is about long periods of unemployment between jobs. “Employment consistency is the most important thing,” she says, “because this helps ensure steady income.”
3. Assets and Ability to Make a Down Payment
Simply put, you need to demonstrate that you have enough money to complete the transaction. “This is why the bank will ask for current bank and investment account statements,” Lambert says.
If there have been large deposits into an account recently, you’ll need to explain where they came from. Gift funds are allowed to help with the down payment, as are sales of stock, but you’ll need to submit a letter explaining the source of this money, according to Lambert.
You’ll also need to demonstrate that you have at least enough reserve cash to cover the first six months’ of mortgage payments, including taxes and insurance. This money can reside in a bank checking or savings account or an investment account.
4. Debt-to-Income Ratio
This is the percentage of your gross (not take-home) income that you have in outstanding debt. The bank will add your monthly mortgage payment, including taxes and insurance, to all of your existing debt to calculate this ratio.
“For qualifying mortgages, the maximum acceptable debt-to-income ratio is 43 percent,” Lambert says. “We do offer some non-qualifying mortgage programs that allow higher debt-to-income ratios, but 43 percent is a good benchmark number.”
If your ratio is higher than this, you may need to consider purchasing a less expensive home or paying off some of your consumer debt, according to Lambert.
5. The Loan Application Itself
Lambert says the loan application is the part of the mortgage application process that borrowers have the most control over. Unfortunately, it’s also the part where many borrowers come up short.
“Borrowers need to provide all of the information and documentation that’s requested in the application,” she says. “If the bank is asking for something, there’s a reason why. Failure to thoroughly complete the application will result in underwriting delays that could jeopardize the closing.”
“If these five things are in order, then applicants are good to move forward with the application process,” Lambert says. Therefore, keep this checklist handy so you’re prepared when it’s time to apply for a mortgage loan.
If you'd like more information or have additional questions about getting a mortgage, please contact us. You can also find a Cadence Bank mortgage professional near you.
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.