How a Lender Approves You

August 23, 2006

Credit History

Your record of payment on previous and current obligations. Lenders may enquire about your record at the appropriate Credit Bureau.

The only significant item that does not usually appear on the credit report is how well you’ve made any mortgage payments in the past. If you have recently had a mortgage, the lender will call the previous mortgagee (lender) directly to confirm your history. This is called a "mortgage rating."

Income

Lenders require that you pay out no more than 27% to 35% of your provable gross income on all shelter costs. This is known as the "Gross Debt Service Ratio."

You may have other debt, of course, but in combination with shelter costs, the total of all regular payments should not exceed 37% to 42% of your income. This is the "Total Debt Service Ratio."

Down Payment

At least 5% of the value of the property in the case of a purchase, (with a default-insured mortgage), should come from your own savings.

Job Stability

Quite a separate issue from the amount and type of income is "how stable is the flow of income?" While exceptions are usually made, lenders generally look for several years in the same company, or progressive income increases in a succession of related jobs.

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