What do Lenders Look for with Home Equity Loan Applications?

If you’re looking for any kind of mortgage, there are a few set things that lenders will always look for. Your credit, your housing expense ratio, how much debt you have, all of these things and more will tell a lender what they need to know about you. You will have to have enough disposable income to apply to buy a home, but the more liquid you are the better. If you can show them that you already have 20% of your down payment ready to go, or if you’re trying to get pre-approved before you apply, your chances will be much better.

What’s Your Housing Expense Ratio?

How much of your monthly income is going towards your new mortgage? Your lender is going to look at how much money you make and project how much your monthly home equity loan payment will be, along with home owner’s insurance and even private mortgage insurance if you have to go that route. If this ends up being in excess of 28% of your gross income, you’ll be denied. The numbers have to make sense or they just can’t lend to you. So if you make $5,000 a month, and your mortgage payment is going to be $2,500 a month, this is 50% of your gross income; this means you’ll be denied. Make the numbers work, know how much things cost before you apply.

What’s Your Debt to Income Ratio?

Take the amount you earn every month and multiply it by 36% or .36 This will give you a guideline. Again, if you’re making $5,000 a month and $2,500 a month is going towards your debt, you’ll be well over the 36% guideline. You can only have so much debt, and you’ll need to keep this number below INCLUDING your new mortgage. You just can’t go over this number, most lenders don’t like it and if you want a home equity loan you’re going to have to be able to keep this number low.

Are You Steadily Employed?

You have to have some kind of income coming in if you want to get this kind of loan. If you can’t prove that you can make the payments you might need a co-signer or a co-applicant. While home equity loans do run off the equity that you hold in your home, you’ll still need to be able to show that you can make your monthly payments.

What Does Your Credit Report Look Like?

You need to know where you’re at with your credit – if you have bad credit you will have a hard time getting a home equity loan. Don’t fall into the trap that you have equity so you won’t have to worry about credit as much; credit is a determining factor when it comes to deciding your terms and interest rate. Get your credit as high as you can before you apply for any kind of loan, even an equity based one.

Apply for a home equity loan today! https://www.homebasemortgages.ca/apply/