Qualifying For A Mortgage: The Basics

Apr 10, 2024

9-minute read

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Young couple inside their home with their baby.

Are you ready to make the jump from renting a home or an apartment to owning a home? The first step is applying for a mortgage, but how can you tell ahead of time if you'll qualify?

This article will introduce you to some of the factors that lenders look at when they consider mortgage applications and share a few tips to make your application stronger.

Mortgage Qualification Tips: How To Qualify For A Mortgage

Let's begin by looking at the major factors lenders first consider when they decide whether you qualify for a mortgage. Your income, debt, credit score, assets and property type all play major roles in getting approved for a mortgage.

Income

One of the first things that lenders look at when they consider your loan application is your household income. There is no minimum dollar amount that you need to earn to buy a home. However, your lender does need to know that you have enough money coming in to cover your mortgage payment, as well as your other bills.

It's also important to remember that lenders won’t only consider your salary when they calculate your total income. Lenders also consider other reliable and regular income, including:

  • Military benefits and allowances
  • Any extra income from a side hustle
  • Alimony or child support payments
  • Commissions
  • Overtime
  • Income from investment accounts
  • Social Security payments

Lenders need to know that your income is consistent. They usually won't consider a stream of income unless it's set to continue for at least 2 more years. For example, if your incoming child support payments are set to run out in 6 months, your lender probably won't consider this as income.

Property Type

The type of property you want to buy will also affect your ability to get a loan. The easiest type of property to buy is a primary residence. When you buy a primary residence, you buy a home that you personally plan to live in for most of the year.

Primary residences are less risky for lenders and allow them to extend loans to more people. For example, what happens if you lose a stream of income or have an unexpected bill? You're more likely to prioritize payments on your home. Certain types of government-backed loans are valid only for primary residence purchases.

Let's say you want to buy a secondary property instead. You'll need to meet higher credit, down payment and debt standards, since these property types are riskier for lender financing. This is true for buying investment properties as well.

Assets

Your lender needs to know that if you run into a financial emergency, you can keep paying your premiums. That's where assets come in. Assets are things that you own that have value. Some types of assets