How Lenders Evaluate You - 4 Core Things Matter

1) Your credit score (and your partner's) – they use the lowest person’s score. What’s used for each person is the middle of all 3 credit agencies’ scores (Equifax, Experian, and TransUnion).. 780+ gets the best rates. Other break points for a given lender might be 680, 700, 740, etc. Some lenders can finance down to 580 (but that will be a high rate).

2) Debt to Income Ratio (“DTI”) – Your debt is defined as projected housing cost (excluding utilities or maintenance), plus any other monthly, fixed obligation (credit card minimums, alimony, car payments, etc.). Divide that figure by your gross monthly income (that’s the top line on your paystub); if you are at 28% or less, and all other items are favorable, congrats, you may qualify for the best interest rates. If you’re 57% or more, think about a smaller mortgage, meaning, a smaller home. Up to 55%, the FHA might finance you. (Some sellers won’t accept FHA financing because the appraisal is more rigorous.) You are qualified for a conventional mortgage if you’re at 45% or less. Again, if you don’t quite qualify you can reduce your loan amount (by increasing your down payment) and re-calc.

3) Loan to Value Ratio (“LTV”) – What % of the purchase price is your down payment? Deduct that from 100%. So, with 20% down, your LTV is 80%. Generally the maximum is 95% and an FHA loan gets you another 2.5 points in slack. Sellers prefer big down payments, relevant in any bidding war.

4) Reserves - Lenders may not say it but you'll be treated better if you can show you'll have 6-12 months of payment money left in the bank after the transaction.

Note About Self-Employment – Self-employed people are disadvantaged. For no good reason, they are scrutinized a lot more (more document requests, more explanations needed) than “W2” people, that is, who are employed by big company for a sufficient time. Length of self-employment and prior time in your field will matter. If you deduct a lot and don't show your real earnings ("AGI") on your tax return, you may not get the best interest rates. Sometimes the loan is called "no doc". The "no documents" designation is misleading - the lender will demand all sorts of documents, focusing on your bank statements to see money in and out over 1-2 years. We help lenders deduce your real income, using your tax return and then adding back items like depreciation, personal expenses charged to the business (it's fine!), etc., to show a lender your real qualifications to keep your interest rate as low as possible. Most agents just don't care or know that much. We do.