So you are looking for a mortgage, and you are quite confident of getting one, thanks to your excellent credit score. Yes, your credit score is indeed one of the most significant factors Phoenix mortgage lenders consider. However, did you know that there are other factors lenders check out?
They generally want to see your full financial profile before finally deciding your interest rate, and if they should approve your loan or not.
Read on to find out what lenders check out in your loan application.
- Credit History
Lenders will check your credit history through your credit report to show how you’ve managed debt payments. They typically look for delinquent accounts, any past bankruptcy or foreclosures, how many recent credit applications you’ve made, and any outstanding debts.
- Income and Expenses
Lenders don’t consider you much of a risk if you have a good income because it means you will most likely pay your monthly obligations. But your high income can also backfire on you. It won’t help you get a reasonable rate if you have a high fixed expense like rent or mortgage payment.
- Down Payment
As the lower loan amount makes you less of a risk to the lender, paying a larger down payment proves beneficial to you. It leaves you with a lower loan amount, and your lender will most likely be generous with the interest rate.
If your borderline credit score makes it challenging to qualify for a loan, a large down payment can help get approval. But do not clean out your bank account to get a lower interest rate. You need your savings in case of emergencies.
- Term of the Loan
The loan term is important because lenders assume a short time means a lower chance of your missing payments. So if you can afford it, opt for a shorter-term period even if it means a higher monthly payment. You end up paying less in interest across the loan life and will also be quickly out of debt.
Your lender will also examine the value of the house you plan to buy with the mortgage. It acts as the collateral for your loan and is a secured loan that comes with a lower interest rate than unsecured loans. It’s because you agree to let the lender seize the collateral if you fail to repay your loan. So cautiously proceed with the loan if your home is its collateral. You risk losing your home if you can’t repay your loan.
- Your Liquid Assets
Some lenders will want to know if you have assets like stocks, savings, or government bonds to sell for cash quickly. It’ll be helpful if you do because you can always sell them if you lose your job or have some financial problem and cannot repay your loan. The lender may even offer a lower interest rate if your liquid assets cover the loan cost.
- Employment Stability
Last but not least, Phoenix mortgage lenders also check your employment history to see if it’s spotty or if you were recently unemployed. While it may not lead to a loan denial, you may end up with a higher interest rate.
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