What is Mortgage Qualification?

Mortgage Qualification Definition

Mortgage qualification is a standard set by a mortgage lender to approve a potential borrower a certain mortgage loan amount.

There are a number of factors that go into qualifying for a mortgage. Some of the factors are as follows:

Credit Score

A mortgage lender will consider your borrowing history, the amount of credit you have available compared to the amount that you are using, whether you have met your debt obligations in a timely manner and whether you have overextended your credit in the past. The credit history of a borrower will be rated using standard considerations and the credit bureau companies will designate a credit score to the buyer.

Income

A mortgage lender will consider the current income of the potential mortgage borrower, and in some cases, consider the income history of the borrower, especially if past income fluctuated greatly. Income is usually verified in the form of letters of employment, pay stubs, Notice of Assessments and tax returns. If the borrower is self employed, lenders may also examine tax returns and financial statements.

Current Debt Level

The mortgage lender will consider the current debt of the potential borrower, not only considering the amount of debt in comparison to the assets of the borrower (debt equity ratio), but also the amount of monthly income needed to service the debts of the borrower on a monthly basis. In addition, the mortgage lender will consider the effect of taxes and utilities on the monthly income of the borrower. This is known as the Total Debt Service Ratio or TDS

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Other Considerations

Once the mortgage lender considers these factors, it may pre-approve a potential borrower for a mortgage in a certain amount. However, even after the borrower is approved, the lender must also approve the property to be purchased and this cannot occur until an offer has been made on a particular property. In addition, the lender will require documentation to support the information on the application and this is also not reviewed until an offer has been made. Therefore, a pre-approval is NOT a guarantee that a mortgage will actually be provided so it is always prudent to include a “Condition of Financing” when making an offer to purchase, even if you have already been pre-approved.

A Pre-approved mortgage will set the parameters for the price range of the buyer, to insure their expectations are reasonable and to help the home buying process run as quickly and smoothly as possible.

At First Foundation our customers are encouraged to seek pre-approval of a potential mortgage before beginning their home shopping process. Our goal is to help you qualify for a mortgage you can afford.

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If you are interested in learning more about Mortgage Qualification, please feel free to contact us today!

Last updated Sep 19, 2018