Whether you're a new home-owner (and congratulations) or you've been settled in your mortgage for some time, you most likely know that there are two main factors that the bank looks at before anything else: your credit and your income. Usually, the bank will determine how much they'll loan you on a one-third basis - as well as your current credit score.
Take for example: If you earn $9,000 a month and have good credit, then the lender will probably loan you enough money to be repaid at just under $3,000 monthly. That is taking-into account the interest and finance charges. Additionally, if you're 60 or younger and have good credit, the chances of you getting a home loan with a good interest rate are increased.
It may more than just your income and credit.
Lenders also take other factors into account. They may dig through your credit report, as well as a publicly-available individual consumer report, and look for several things. They can look for:
- Auto/miscellaneous repossessions
- Lines of credit you have open elsewhere
- They can ascertain if maintenance (like taxes, utility bills, upkeep of the property) has been paid on-time and the property been taken care of (if you are not a first time-buyer)
- Publicly-available consumer reports on you
- The lender can also use various means to ensure that you are indeed employed and making the amount that you have on the application.
Generally, lenders will only qualify you for a loan that is 80% or lower of your current home's appraisal. Additionally, many banks do not like to loan under the $75,000 threshold - which is usually not a problem given that the average house is $100k. The property has to be in an insurable state - meaning that it's up-to-code electrically and architecturally, plus there is no existing lien or hold on it.
If you're a first-time home buyer, you actually have a lot working for you. The government is offering a wide array of incentives to first-time owners such as big tax deductions. In either case, though, sometimes you may be required to make an initial deposit on the home - which may or may not be included in the 10% down-payment that's the usual with banks.
Remaining considerations:
As mentioned before, you have to insure the property against unforeseen incidents - like your passing-away, a natural disaster or even burglaries.
In addition to insuring your home, most banks mandate that you have adequate life insurance (which is usually very cheap for most people under 50). Many insurance companies even bundle life-insurance with home-owners insurance together.
The length of your loan is sometimes negotiable. The APR is almost strictly based-of your credit score. Obviously, the longer-term loan you can get, the lower the monthly payment will be. It's not unusual for banks these days to loan out money for 30 to 40 years.