There are four primary criteria reviewed in an application for a mortgage:
Credit History - The best indicator of how well an applicant will pay their mortgage is how well they have handled their credit and housing expenses in the past. The last two years is especially critical. It is recommended that all borrowers obtain a copy of their credit history from a credit bureau and review it for errors prior to applying for a mortgage.
Income - Borrowers must demonstrate sufficient income to support their mortgage payments as well as all other debts. Generally the 28/36 guideline is used. In other words, a borrower's housing expense should not exceed 28% of their gross (before tax) income and all of their debts combined (including housing) should not generally exceed 36% of their income. Borrowers must also show steady employment in the same line of work for at least the past two years. All income must be documented and verified via W-2s, pay stubs and tax returns.
Property - All properties must meet the lenders minimum standards. All properties must have the appropriate certificates of occupancy, be legal, comply with local zoning regulations, and require no major structural repairs. An appraisal of the property will be performed to establish condition and market value of the home.
Source of funds - All money to be used for the down payment and closing costs must be verified. Therefore, borrowers will be required to provide account statements and document the source of all large deposits.