Will I qualify for a mortgage?

There are certain requirements a borrower must meet to be approved for a mortgage or home loan. Your lender will review your financial information to determine your current amount of debt, your past repayment habits on your debts, and your ability to handle the increased financial responsibility of buying a home. Here’s what matters most to them.

Primary areas of consideration for mortgage approval

Income

Do you have sufficient income to pay your new mortgage payment and other debts?

Lenders may review your income and employment history to ensure you are able to take on a mortgage. Expect them to review federal income tax returns and W-2s, along with current pay stubs and bank statements for at least the past two years. Documents are required for both you and any co-applicants, such as a spouse or partner. They’ll be looking at your employment situation (are you on salary? Commission? Self-employed?) and considering things like base pay or wages along with any bonuses.

They’ll also want to make sure you’re financially stable and receiving regular income. Lenders prefer applicants with at least two years of stable employment or a longer employment history. However, if you have switched jobs or are just starting out, it doesn’t necessarily mean you won’t be approved.

Credit history

How have you handled your other credit obligations? Lenders look at your credit score to determine your past repayment history when it comes to your debts.

A good credit score can make a difference.

Your credit score is another example of a qualifying guideline.

Lenders will review your credit report to examine your open accounts and payment history. The information on your credit report determines your credit score. A higher credit score can give you access to better borrowing opportunities and loan terms. There may be opportunities to improve your credit score before you begin shopping for a home and applying for a loan.

Why is your credit score important? It gives lenders a snapshot of how well you’ve repaid your debt in the past. It’s one of the factors lenders consider when evaluating a mortgage loan application.

If you want to improve your chances of qualifying for a home loan, it may help to familiarize yourself with the types of mortgages available and what lenders may look for.

Under the Fair Credit Reporting Act, you’re eligible to receive a free copy of your credit report, at your request, once every 12 months. To order your free credit report, visit the Annual Credit Report Request Service or call them at 877-322-8228.

Credit utilization

Simply put, your credit utilization is how much of the credit available to you that you’re using. For example, if your credit card balances are near the spending limit, your credit utilization is high. It’s recommended that you keep credit utilization at around 30% of available credit.

Change in housing payment

Is there an increase from your current housing expense to your new mortgage payment? Lenders will consider whether your new home mortgage payment would be a significant increase from what you’re currently paying for housing. Some homebuyers may want to use the 30% rule and keep monthly housing payments (including insurance and taxes) below 30% of their monthly gross, or pre-tax, income.

Cash to close

Do you have enough money available to pay the required down payment and closing costs for a new mortgage? Down payments can vary depending on the type of loan and the home price and are typically between 0% and 20% of the purchase price. Average closing costs are usually between 2% and 5% of your loan amount, but can vary in different locations and with different lenders.

Typical closing costs

Your closing costs may include:

1. Lender fees

•  Application
•  Points
•  Origination fees
•  Processing fee (includes underwriting fees)

2. Service/third-party vendor fees

•  Appraisal fee
•  Attorney fees
•  Courier fees
•  Credit report
•  Flood determination/life-of-loan coverage
•  Home inspection
•  Pest inspection
•  Survey fee
•  Title insurance (lender’s policy)
•  Title insurance (owner’s policy)
•  Title company closing fee

3. Government fees

•  Recording fees
•  Transfer of taxes

4. Prepaid escrows

•  Escrow deposit for taxes and insurance
•  Property insurance (which may include flood insurance, if applicable)
•  Prepaid interest

Property appraisal

Is the home you want to purchase worth as much or more than the price you agreed to pay? A home appraisal is an assessed value of the property you want to buy. It’s typically required by lenders, and it helps ensure you’re paying a fair price for the home. It can play a role in factors like your interest rate, down payment, and loan approval. If the appraisal comes in below the purchase price of the home, it can lower the amount lenders are willing to provide. Your real estate agent can help determine your options if the home appraisal is lower than the agreed-upon purchase price.

Different mortgages have different qualifying guidelines.

One example of a qualifying guideline is the debt-to-income ratio (DTI), which is used to determine the maximum loan amount for which you might be eligible.

Typical DTI ratio guidelines:

DTI stands for your debt-to-income ratio. Many loan programs require that no more than 43% of your gross monthly income should go toward recurring debts—for example, housing expenses, credit card, car loan, or installment loan payments. Some lenders and loan programs may require lower DTI ratios—capping the DTI at 36% is not uncommon. Additionally, some loan programs allow ratios higher than 43% when there are other compensating factors, and there are special loan programs for low- to moderate-income homebuyers. Your loan officer can offer details.

Remember this DTI ratio is based on pre-tax dollars—the amount you spend on housing will depend on your income and other living expenses.

How can I improve my approval chances?

There are some steps you can take before applying for a home mortgage that may help increase your approval odds. These can include:

• Thoroughly check your credit reports and credit score so you’ll have a better idea of your financial situation, your debt, and how much of your available credit you’re using.
• Pay down your debt. Reducing your debt may increase your credit score and show lenders you’re able to manage your finances responsibly.
• Save for a down payment. While it may not be required as part of a home loan, having some savings can make you more confident during the homebuying process.
• Get preapproved.^{Disclosure 1} Our free preapproval process can help you determine how much you can comfortably spend on a home and your preferred price range.

Next steps

Once you feel confident that you understand the costs and fees of purchasing a new home and are comfortable with your potential mortgage payments, you’re ready to take the next steps to homeownership.

Mortgage qualification key terms

A point is a one-time charge imposed by the lender to lower the interest rate at which the lender would otherwise offer the loan. Each point is equal to 1% of the mortgage amount.

An origination fee is charged by a lender to cover administration and loan document preparation. The fee is usually based on a percentage of the loan amount.

An appraisal is a formal written estimate of the current market value of a home and land.

A credit report is a record of your current and historical borrowing and repaying, including information about late payments and public records such as bankruptcy.

A credit score is a numerical value that serves as a credit risk measure derived from a statistical program and based on information contained within a credit report that lenders use to determine a borrower’s creditworthiness.

Credit utilization is the amount of credit available to you that you’re using. High credit utilization can impact your credit score and increase your risk when it comes to mortgage approval.

A survey is a measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any improvements.

Title insurance is an insurance policy that insures against defects in the title. The cost of the policy is usually a function of the value of the property and is often paid by the purchaser and/or seller. There are two types of policies: a lender’s policy and an owner’s policy.

A lender’s policy is required by Truist and protects the lender’s interest in the event a claim arises.

An owner’s policy protects the buyer’s interest in the property (home and land). An owner’s policy is optional, but it is recommended that you obtain this coverage for your protection.

Recording fees are charged by a municipality for recordation of the deed, the mortgage/deed of trust, and at times, additional documents requiring public notice.

Property insurance is a policy insuring a private dwelling and its contents against multiple perils.

Prepaid interest is the amount of interest paid at closing to cover the period from the closing date until one month before the due date of the first mortgage payment.

Debt-to-income (DTI) ratio is expressed as a percentage and is equal to a borrower’s total monthly payment obligations on current debts divided by their gross monthly income.