The bank looks at several factors when making a credit decision. Each bank has different guidelines, requirements, and criteria that they follow. The primary things that are considered are credit score and debt to income (DTI).
Your credit score is a numerical figure that is generated to give banks an idea of your past finances. There are several different factors that go into this score such as credit utilization, credit history, payment history, types of credit used, etc. The higher that your credit score is, the better. The bank grades credit on a scale of 300-850. There are three different credit bureaus that generate a credit score and each bank views each credit bureau differently. It is helpful to be informed and have a general idea of what your credit score is.
There are several methods of calculating your DTI and each bank handles this differently. The bank looks at your total income coming in vs the total amount of debts going out. When considering your home purchase they consider the cost of land (if applicable), land improvements, home cost, taxes, and insurance. Banks are legally hindered and unable to loan you money if your DTI is too high, meaning you could not cover your current debts and your monthly home payments. Please come with a general idea of your current debts so that this can be disclosed to the bank during the financing application process, this includes things such as: student loans, child support, car payments, or even co-signing for someone else on a loan.
The early bird gets the worm, so here is how you can be prepared to help make the process a quick one…the bank will always need to verify several documents from each person on the application. If you have these documents available please go ahead and bring them in:
- Drivers license or state issued ID
- Social security card or signed w-9
- If not an American Citizen, please provide your Tax Identification Number (TIN)
- Copy of deed (if applicable)
- Verification of income (W2, 1099, SSI, whichever is applicable)
- Last two pay stubs