The Mortgage Credit Approval Process: What You Need to Know

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Credit approval is an application for financing that helps determine which homes are in your price range. To get credit approved, you provide the same paperwork you would when making a formal loan request. The Loan Officer will ask you for employment and income verification and deposit and loan information. They will also pull a credit report to assess your credit history.

Credit approval assures your application is approved for a loan, but is not a mortgage contract.

To be approved for a mortgage, your Loan Officer will use financial information you provide to give you an estimate of the max mortgage you should aim for. You need to know your gross monthly income (before taxes) which can be calculated from a pay-stub. You will also need to know how much your monthly debts are. These include things like car payments, credit cards and student loans.

Typically, your monthly house payment should be around 28 percent of your total  gross monthly income. Your house payment (monthly mortgage payment) includes the principal and interest to repay your loan and possibly escrow for real estate taxes and homeowner’s insurance. Your Loan Officer can help you determine this. Your house payment may also include private mortgage insurance and/or an association fee.

Your total monthly debt, including your estimated house payment and other monthly debts, should not be more than 36 percent of your gross monthly income.

Of course, these figures vary between lenders and loan products. How much you can afford also depends on the interest rates at the time of purchase and your down payment. The down payment is the difference between the purchase price and the loan amount. Down payments typically range from 3% of the purchase price to however much you can put down. The larger the down payment, the lower your loan amount and the less interest you will pay over the life of your loan.

And don’t forget to consider extra expenses like utilities, child care, groceries, gasoline and savings. Even those these expenses aren’t considered as part of the approving process, they are still important for you to think about. Once in your new home, you want to be able to enjoy it and not feel financially strapped.

To get an idea of what you can afford before talking to a Loan Officer, try different scenarios on our online mortgage calculator.

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