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Key factors underwriters look at for loan approval. First of all, the term underwriting might sound a little confusing, but underwriting simply refers to the process of a lender verifying your income, debt, assets and the details of the property you desire to obtain in order to issue a final approval for your loan. For more details on thjs check this RocketMortgage article on underwriting.

DEBT-TO-INCOME RATIO

Underwriters will take a look at your monthly income, and figure out the percentage you spend on housing expenses and other debts you may have at the moment that may or may not show on your credit report.

For Example someone that has a salary, the qualifying income for a loan (most of the time) is determined by your gross salary, and a two-year-average of any bonus or commission income.

What about if you are self employed or a freelancer? Underwriters will most likely take the average of the last year or two years of your net income in other words, how much you got left after paying taxes/expenses on your tax returns. The debt-to-income ratio can be different depending on the loan program you are looking at as well.

EMPLOYMENT HISTORY

Being able to prove you can hold a job is key as well. For people who own a business, (self employed/freelancers), typically a two year history is needed of income in the same business in order to qualify for a loan. If your main income is salary, you typically need 30 to 90 days of employment at your current job before you can close the transaction. Your employment will typically be re-verified 24 to 48 hours prior to closing!

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CREDIT HISTORY

A review your credit score and payment history will also be necessary, do you have any outstanding debt? a car loan maybe?, as well as the number of credit card accounts you have open and how long those accounts have been open, these are all minimum credit requirements.

ASSETS

Underwriters will take another look at your bank statements to verify that you have sufficient funds for the down payment, closing costs and post-closing reserves. They also look out for large deposits into your accounts so they can verify that the funds originated from an acceptable source, in other words, if you are trying to fake it by asking your grandma to let you borrow 50K to get a loan approval that will definitely rise a red flag.

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