apacity

ollateral

reditworthiness

apacity

ollateral

reditworthiness

C

C

C

C

C

C

=

 

Being Qualified

=

 

Being Qualified

judgment, the lender hires a professional 

appraiser to evaluate the property both  

on its own merits and in relation to  

comparable properties.

Creditworthiness depends on how 

you have used credit in the past, including 

loans and lines of credit. Lenders use both 

a credit report and a credit score based  

on the report to make this assessment.

Some lenders may use information  

on your rent and utility payments and 

other contractual spending to evaluate  

the risk you pose. This is known as alter-

native documentation. They may also 

use automated underwriting systems, 

which are software programs that use 

Lenders evaluate, or underwrite, your 

mortgage application to decide if you’re  

a good risk. In general, what they want  

to see is:

        A down payment, or initial cash payment,  

of 20% or more of the purchase price 

        No more than 28% of your gross annual  

income needed to pay PITI—principal,  

interest, homeowners insurance, and  

property taxes 

        A strong credit report, without late  

payments or defaults

        A debt-to-income (DTI) ratio of no more  

than 43%, which means that you need no  

more than 43% of your gross annual income 

to pay your mortgage plus your other debts

        A history of regular employment at a  

full-time job

MEETING LENDER STANDARDS

You may hear the criteria that lenders  

use in evaluating your application for a 

mortgage loan described as the big three.

Capacity addresses your ability to 

have enough cash for the down payment 

and closing costs, keep up with the loan 

payments, and still have some assets in 

reserve. In general, capacity depends  

on your current monthly income, your 

investment assets, and your other  

financial obligations.

Collateral is the value of the property 

that you plan to buy. A lender requires 

that it be worth at least as much as  

you’re borrowing to buy it. To make that 

Qualifying for a Mortgage

Being able to buy a home usually depends on being able  

to borrow.

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