There are 4 factors that determine your interest rate and a lender places a measurement of risk against each of these factors. The higher the risk, the higher your interest rate will be. The 4 factors are: Mortgage or Rental History, Income, Credit and Assets.
MORTGAGE OR RENTAL HISTORY
Your rental or mortgage history is very important when you apply for a mortgage. The lender needs to know if you have been late on either your mortgage or your rent during the last 12-60 months. If you are a renter, your cancelled checks, or the automatic deduction from your bank account will serve as proof as to the timeliness of your payment. If you own a home your credit report will indicate how promptly you paid your mortgage. However, if you are a renter, cash payments to, and personal receipts from landlords are not acceptable because the lender believes they are not authentic.
If you have been late on either your mortgage or rent, the lender will then have to determine how recent your late payment was, (was it over 30, 60, 90, 120 + days?), how many late payments and what were the circumstances. A risk factor will then be determined by the lender.
INCOME
Your income should be enough to satisfy the requirements of the loan. Acceptable types of income to a lender would include the following:
• Wages and Salary
• Overtime and Bonuses
• Part-time or Second Job Income
• Seasonal Job Income
• Commission Income
• Tax Exempt Income
• Military Income
• Interest and Dividend Income
• Notes Receivable or Installment Sales Income
• Trust Income
• Alimony and/or Child Support
• Pension, Retirement and Social Security
• Disability Benefits
• Foster-care Income
• Veterans Benefits
• Unemployment Benefits
• Automobile Allowances and Expense Accounts
• Rental Income
• Boarder income (tough to prove – 1 in 10 chance)
• Co-Borrower Income (occupying or non-occupying)