Published · The Loan Ranger
The four things a lender looks at
- Credit
- Your score and your history of paying on time. A higher score usually means a lower rate, and each loan program has its own minimum.
- Income
- What you earn and how steady it is. The lender compares your monthly debts, including the new house payment, with your monthly income.
- Assets
- Your savings for the down payment and closing costs, and what is left afterwards.
- The property
- The home is the collateral, so it has to appraise for the price and meet the loan program’s standards.
Documents to gather
Having these ready shortens the process:
- Pay stubs from the last 30 days
- W-2s from the last two years
- Federal tax returns from the last two years, especially if you are self-employed
- Bank and investment statements from the last two months
- A government-issued photo ID
- If it applies: divorce decree, child support order or VA Certificate of Eligibility
Self-employed borrowers should also expect to show business tax returns or a profit and loss statement.
Pre-qualification and pre-approval
A pre-qualification is an estimate based on what you tell the lender. A pre-approval is based on documents the lender has reviewed and a credit check. Sellers give far more weight to a pre-approval, and it is the one that tells you what you can really borrow.
Compare more than the rate
Two loans with the same rate can cost different amounts. When you compare offers, look at:
- The interest rate and the APR, which includes fees
- Lender fees and any points you pay to lower the rate
- Mortgage insurance, if you put down less than 20%
- The cash you need at closing
A bank quotes its own loans. A mortgage broker such as Max requests quotes from several lenders and shows them to you side by side.
Fixed or adjustable rate
A fixed-rate loan keeps the same interest rate and the same principal and interest payment for the whole term. Most buyers choose it because the payment is predictable.
An adjustable-rate loan starts with a rate that is fixed for a set number of years and can change after that. It can make sense if you expect to sell or refinance before the first adjustment. Ask how high the rate and the payment could go, and plan for that number.
The term matters too. A 15-year loan has a higher payment than a 30-year loan and costs much less interest in total. You can compare both in the calculator on the conventional loan page.
Locking your rate
Rates move every day. A rate lock holds your rate for a set period, usually long enough to reach closing. Ask how long the lock lasts and what happens if closing is delayed.
What to avoid before closing
Your approval is based on a snapshot of your finances, and the lender checks again before closing. Until you have the keys:
- Do not open credit cards or finance a car or furniture
- Do not change jobs or become self-employed without talking to your loan officer
- Do not make large deposits you cannot document
- Do not co-sign a loan for someone else
- Keep paying every bill on time
General information, not a loan approval or financial advice. Loan programs and requirements change, and Max confirms what applies to you.
