Home Buyer’s Guide | Verity Loans

What Lenders Look For

When you apply for a mortgage, lenders look at three main things: your credit scores, your debt ratio and your loan-to-value.

Credit Scores

Lenders look closely at your credit scores and how well you pay the monthly obligations on your credit reports. Each loan program sets a minimum score, based on your scores from the three consumer reporting agencies (CRAs). Some programs accept lower scores in special circumstances, though approval usually takes extra time and documentation.

Check your scores before you apply. If you find errors, corrections can take up to 90 days to show up, so start early. If your scores are close, we can work with you and point you to resources that may help you improve them.

Debt Ratio

Your debt ratio is your monthly debt payments as a percentage of your gross monthly income, before deductions like taxes and Social Security. It includes car payments, credit card payments, student loans, your new mortgage payment and other debts on your credit reports.

As a rule of thumb, keeping your total monthly debt payments at or below 45% of your gross monthly income may help you qualify, if your credit scores and down payment also meet the requirements. There are exceptions: we have gotten loans approved with debt ratios as high as 55% in certain circumstances. Certain limitations apply. Call for details.

Debt ratio, by example

Gross monthly income$10,000

Monthly debt payments: $4,500
Rest of income: $5,500

$4,500 in debt payments ÷ $10,000 income = 45% debt ratio

With a gross monthly income of $10,000, monthly debt payments of $4,500 (car, credit cards and the new mortgage) make a 45% debt ratio.

Loan to Value

Loan-to-value (LTV) compares your loan amount to the home’s purchase price or appraised value. For example, an $80,000 loan on a $100,000 home is 80% LTV.

Loan-to-value, by example

Home value$100,000

Loan: $80,000
Down payment: $20,000

$80,000 loan ÷ $100,000 value = 80% LTV

A $100,000 home bought with an $80,000 loan has an 80% loan-to-value (LTV). The other $20,000 is the buyer’s down payment, which becomes their equity in the home.

An 80% LTV, with 20% down, has long been the standard for mortgage loans, because a larger down payment lowers the lender’s risk. Until about 30 years ago, it was almost the only kind of loan banks made. Today, we regularly make loans with higher LTVs for buyers who have less saved for a down payment.

Determining If You’re Ready to Buy a Home

Buying a house is a big commitment, so before you start house hunting and comparing mortgage rates, take the time to examine your current situation and how it could change in the future.

Ask yourself:

Are you planning on any major life changes, like changing jobs or starting a family, in the next few years that could impact your financial situation?
Can you commit to staying in a home for at least five years?
Do you have a stable income?
Are you confident you can handle house repairs (or can take the time to learn), or are you willing to pay a specialist when something breaks?

From Preapproval to Closing

Here’s what to expect once you’re ready to buy.

Step 1
Prequalify
Share your income, debts and savings for an estimate of what you can borrow.
Step 2
Get preapproved
We verify your income, assets and credit. If you qualify, you receive a preapproval letter to shop with.
Step 3
Make an offer
Find your home and put in an offer, backed by your preapproval.
Step 4
Appraisal and underwriting
The home is appraised, and your loan file is reviewed for final approval.
Step 5
Close
Sign your loan documents, get your keys and move in.

How long do I need to own my house before it pays off?

Generally, we recommend you only consider buying a house if you plan to live there for at least five years, but this depends on a lot of factors, like the housing market, rental prices and how much equity you have in the house.

Buying vs. Renting a House

Each option has its benefits, so consider what matters to you.

Benefits of Buying

No landlord means you can make your house the home you want without anyone else’s approval.
Unlike rent payments, the interest you pay with your mortgage payments can be tax-deductible.
You can find a mortgage tailored to your budget and goals, and a fixed-rate loan keeps your principal and interest payment from going up as the market changes.
You build equity as you make your monthly mortgage payments.

Benefits of Renting

Your landlord is often responsible for home repairs and upgrades.
You won’t have to buy homeowners insurance or pay property taxes on your home.
Moving can be easier since you won’t have to sell your home or find renters.