Getting a mortgage approved
Top 5 things lenders look at
- Your income
- Your net worthNet worth The value of all your assets, less what you owe.+ read full definition – This is the difference between what you own (cash, investments, your home and other real estateEstate The total sum of money and property you leave behind when you die.+ read full definition) and what you owe (any loans or mortgages you already hold).
- Value of the home you’re buying – The lender needs to know your home is worth enough if it has to sell it to cover your mortgage debt. This is called the collateral for your loan.
- Your credit score – Your credit report shows your record for paying bills and credit cards, and paying back loans on time.
- The stability of your work and life situation
3 main risks for lenders
- Interest rates can rise – People can’t keep up their monthly payments.
- Housing prices can drop – People who sell their homes may not be able to pay back their mortgages. Sometimes their home is not worth what they owe to the bank.
- People can lose their jobs – Without mortgage insuranceMortgage insurance Insurance you get to cover your mortgage payments in case you get sick, hurt, or die.+ read full definition, they may quickly run out of money to make their monthly payments.
Make sure you can show a lenderLender Any person or organization that lends money.+ read full definition that you are able to carry a 5-year fixed-rate mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition — no matter what type of mortgage you choose.
The lender can take ownership of your home if you can’t make your mortgage payments.