Four aspects to consider in a mortgage loan

There are four fundamental aspects to the structuring of mortgage loans. Applicants should learn what these are to be prepared when applying for a loan, as these are the same aspects the bank will analyze.

1. Income/Employment : The bank seeks to analyze your employment situation and income level. To do this, they typically review your income history for the last two years to determine if your current income level is stable. This doesn't mean you have to have been with the same company for the last two years; you may have changed jobs. The important thing is to determine that your income is stable (that it has remained at the same level or increased). For self-employed borrowers, it's important to note that the business or activity being used must have been operating for at least two years. To verify this, you must submit your tax returns for the last two years. The income calculation starts with Net Profit (Income minus Expenses), not just Revenue. Some expenses and deductions can be added back. More on this in another article.

2. Credit : Generally, the "health" of your credit is analyzed, including whether there are late payments, collections, bankruptcies, mortgage defaults, and other factors. Generally speaking, a credit score should not be lower than 620 (580 in some cases, although banks may have guidelines that lower it back to 620). However, if you want access to better terms, it's best to have a credit score of at least 700 or higher.

3. Monetary Assets : It must be determined that you have sufficient funds to cover the down payment and closing costs. For this, bank statements, typically from the last two months, are required to demonstrate that the funds are available. The source and age of the funds must be established. As a general rule, if deposits exceed 50% of monthly income shown on the submitted bank statements, the source of these funds must be explained. It is important to note that cash is not an acceptable source of funds. That is, a mortgage applicant cannot take cash from their possession and deposit it into their account (for the purpose of using it for a mortgage loan), as the bank cannot determine the source of these funds.

4. Property : The final aspect is the property itself. The bank will analyze the property's characteristics and condition. This is done by ordering an appraisal, which, in addition to providing an estimate of the home's value, lists the property's features and notes on its condition, as well as how it compares to similar properties. The type of property is also taken into consideration. Buying a single-family home is not the same as buying a multi-family home, which in some cases requires a larger down payment (although some programs allow you to set a minimum down payment regardless of whether it's a single-family, multi-family, or multi-family home). If it's an apartment (condominium), the bank would need to approve not only the applicant but also the building where the apartment is located. Apartments also require a homeowner's association fee, which must be factored in when determining the applicant's loan eligibility.

This is a general overview of the key aspects to consider when applying for a mortgage. There are many more details to consider, and not all programs will follow the same guidelines, but this should give you a general idea of the main aspects taken into account for "traditional" loans with complete documentation here in the United States.