Getting a home loan approved can sometimes become a tedious task, especially because very few people know what factors are involved.  Take, for instance, a car.  If you have no mechanical knowledge whatsoever and your car breaks down, how will you know how to fix it?  There are too many parts and, to you, it could be any one of them.  It is the same with a home loan to some extent, because how will you get a home loan approved if you do not know what factors are involved?

 

Income:

Your gross income plays a big role in your home loan approval because it is used to calculate that amount that you are able to afford as a monthly payment.  In some cases, it may be applicable to consider average overtime and commision.  Of course, the more you earn, the more you will be able to afford, keeping in mind that your total amount of debt plays a role as well.  

 

Housing Expense

Your housing expense is the total projected amount that you will have to spend on housing monthly.  This includes your home loan repayment (principal as well as interest), taxes, insurance and, in some cases, government expenses like waste removal.  It is a general rule that your total housing expense should not exceed 28% of your income, which is why it is used to determine how much you can afford in conclusion with your total income.

 

Debt-to-income ratio

Your debt to income ratio is very important because it would be irresponsible for any financial company to loan you more than you are able to afford to pay back.  Your total debt monthly repayments, including the home loan, may not exceed the total of 36% of your income.  In other words, if your debt repayments are 6% of your income, you can spend 28% of your income on housing expense because of the previous factor.  If your debt repayments are 20% of your income, however, you will only be allowed to spend 16% of your income on Housing expense.

 

Credit History

Your credit history, which includes your credit score, is important because the lenders must know how well you handle debt.  If you are someone that always repays debt on time and you never make too much debt, you will have a good credit history, which means you will pose less of a risk to the lenders, which counts in your favour.  If the opposite is true, however, the opposite will be applicable.

 

Employment History

If you fall from job to job, it will be quite hard for anyone to trust you with money, including lenders.  If your employment history looks bad, it will count against you, because it is another reason for the lenders to believe that they may not get their money back.

 

Appraisal of Property

Lenders need to know that you are not paying way too much for a property since that will cause your mortgage to go underwater from the start.  Because this is possible, lenders require a professional appraisal to be done.