What Does A Bank Look At When Approving A Home Loan?

    Submitting a home loan application at a bank is a bit of a mystery for most people who want to buy property. A bank will want to see your credit score, down payment amount, debt (if you have any), and proof of employment. This important information will be used to determine your approval or denial when submitting a home loan application.

    Credit score

    Your credit score indicates to a bank how well you can manage your finances. To get the best rates possible, you want a credit score of 700 or above. Having a score between 600 and 700 is considered pretty good and will get you average rates. With scores below 600 you have entered the subprime market and will pay higher interest rates.

    Down payment

    The amount you have available for a down payment is another indicator a bank wants to know. Having a down payment of 20 percent or more for a home is ideal. Other home loans are available for less down, but these loans often require that you take out private mortgage insurance, known as PMI. Some current down payment assistance programs will pay a certain percent of your down payment. VA loans do not require any down payment.

    Debt

    A bank wants to know that you have enough income to pay the mortgage on your home and that you are not carrying too much debt. Ideally, you are not carrying more than 30 percent debt to your annual income. If it is a bit higher than 30 percent, you may find yourself with a higher interest rate.

    Employment

    A bank will want to see several pay stubs to show continual employment as well as a steady income level. For the self-employed, proof of income is a necessity. This proof may be in the form of profit and loss statements, federal income tax returns and bank statements.

    The value of the home you want to purchase needs to appraise for at the least the total of the down payment and the loan you are requesting. If the home’s appraised value is more than the needed total, a bank may want a larger down payment. In some cases, a bank may deny the loan on a particular piece of property.

    If you are thinking about purchasing a new home, getting your loan pre-approved is important. If you need help getting a loan or finding your next home, contact us here at Elite Real Estate Group Amarillo. Speak with one of our realtors by calling (806) 337-0883 or send us an email. Also, take a look at all the properties available through our website and learn more about all the services we provide.

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